CASE CLOSED: Homer City Generation

05 December 2017

Homer City Generation made it through Chapter 11 in just 36 days, confirming a prepackaged plan that swapped USD 641m in secured notes for equity and provided the reorganized company with USD 150m in exit financing.
 

The company, which owns a coal-fired independent power production plant in Homer City, Pennsylvania, filed for bankruptcy protection on 11 January and confirmed a plan on 15 February.
 

Homer City put the plan into effect on 6 April following the confirmation order from Judge Mary Walrath of the US Bankruptcy Court for the District of Delaware.

 

CLICK HERE to view all Homer City Generation Chapter 11 filings on Debtwire Dockets.

 

The company
 

Homer City’s plant, situated on 2,400 acres of property in its namesake city, contains three electric generating units with an aggregate production of 1,884 megawatts and the ability to generate electricity for two million households. Units 1 and 2 came online in 1969 and produce 620 MW and 614 MW, respectively, while Unit 3 began operating in 1977 and produces 650 MW. All units are operated by NRG Energy.

 

General Electric bought the plant from Edison Energy in 2001 and leased it back to the company until 2011, when Edison failed to meet certain financing goals. Homer City filed a Chapter 11 in November 2012 and emerged with a plan that had GE fully retake control of the company until the second bankruptcy case in 2017.

 

The debt
 

Homer City entered its second Chapter 11 case with USD 650m in debt. The company’s full prepetition capital structure is laid out here:
 

 


 

Under the plan, Morgan Stanley provided the company with USD 150m in exit financing. The full post-reorganization capital structure is below:


 



 

The descent
 

The company struggled to cope with “historically low” natural gas prices, lower power generation and unseasonably mild weather as revenues shrank to USD 480m in 2015 from USD 345m in 2014.
 

Homer City kicked off a sales process in February 2016 with the aid of investment banker PJT Partners, contacting 23 potential bidders and entering into seven non-disclosure agreements. The company reported that it received several bids with an implied total enterprise value between USD 230m and USD 505m, but in June 2016 the company entered talks with an ad hoc group of bondholders holding 70% of the outstanding notes and pivoted to a restructuring. Debtwire reported in September 2016 that a group of secured noteholders had retained O’Melveny & Myers as legal counsel and Houlihan Lokey as financial advisor.
 

The company missed a USD 50m interest payment on its 8.734% notes on 1 October but entered into a forbearance agreement with holders of 75% of the first lien notes through 17 October. Homer City was able to secure extensions of the forbearance agreement several times until the parties put together a plan on 9 January backed by 86% of the secured noteholders. The company filed for Chapter 11 two days later.

 

The plan
 

Under the prepack plan, secured noteholders owed USD 641m would take 100% of the company’s reorganized equity. GE, which held USD 101.5m of the notes, agreed to turn over one-third of its recovery on its notes to the other noteholders, while holding on to the remaining two-thirds.
 

General unsecured creditors, owed USD 15m, would be paid in full.
 

Morgan Stanley would arrange USD 150m in exit financing. Homer City and CONSOL Energy Inc entered into a new two-year supply contract to provide Homer City’s fuel through 2018, and NRG would continue to operate the plan through 31 December 2017.

 

Confirming a plan
 

At the company’s first day hearing on 12 January 2017, Judge Walrath approved the company’s standard operational motions, including use of cash collateral. The judge scheduled a combined disclosure statement and confirmation hearing for 15 February.
 

Homer City ran into its only trouble in the week before the confirmation hearing, when US Trustee Andrew Vara objected to what he called “impermissible” third party releases. The trustee took issue with a provision in the plan that would require creditors deemed unimpaired to file an objection to the releases, while creditors who abstained from voting on the plan would be automatically deemed to accept.
 

At the 15 February confirmation hearing, Judge Walrath said she agreed with some of the trustee’s arguments but confirmed the plan with the releases anyway.
 

“I’m satisfied again - in the narrow facts of this case where the creditors are in fact getting paid in full - that the releases are appropriate,” Judge Walrath said, as she approved the plan.

 

The plan went effective on 6 April.

 

The advisors
 

Richards Layton & Finger was legal counsel to Homer City. Zolfo Cooper was its restructuring advisor, and PJT Partners was its investment banker. Epiq Bankruptcy Solutions was the claims agent.
 

O’Melveny & Myers and Young Conaway Stargatt & Taylor were counsel to the ad hoc committee of bondholders. Houlihan Lokey was the group’s financial advisor.
 

Emmet Marvin & Martin was counsel to Bank of New York Mellon, the trustee on the company’s prepetition notes.
 

The case was In re: Homer City Generation, number 17-10086, in the US Bankruptcy Court for the District of Delaware.

 

CLICK HERE to view the confirmed plan.