Noteholders not thrilled so far with offers to buy Homer City coal plant

Homer City Generation LP, an affiliate of General Electric (NYSE: GE) that owns an 1,884-MW, coal-fired plant in Pennsylvania, said in an August 2016 presentation posted to its website that it has been engaged in a strategic review process to evaluate potential alternatives to address its long-term capital structure, including Homer City’s outstanding secured notes of approximately $606 million (called the “Notes”).

As part of this process, Homer City engaged legal and financial advisors and initiated a sale process in the first quarter of 2016 and provided potential third-party bidders with access to confidential information. Homer City said it has received multiple bids with implied total enterprise values ranging from $230 million to $535 million. Bids were received from interested parties consisting of financial and strategic bidders.

The bids vary widely with respect to their terms and include terms such as: a mix of new debt and equity, including in certain cases, first lien secured debt and/or structurally subordinated debt; varying levels of capital contributions; varying levels of third party credit support; andin certain cases, the sale of certain assets or potentially beneficial commercial arrangements.

Homer City said it has been simultaneously engaged in discussions and working collaboratively with certain holders of the Notes who collectively hold a majority of the total outstanding principal amount of the Notes. The Noteholders have informed Homer City that they do not consent to any of the current bids received and indicated that the total enterprise values do not correlate directly to recoveries that could be realized on the Notes. The Noteholders would, however, be willing to consider modified proposals if they are materially improved. Homer City said it remains in discussions with the advisors to the Noteholders regarding strategic alternatives.

The 41-page presentation described a number of operational developments related to the power plant. GE Capital owns 95.04% of the common equity of the company and an affiliate of MetLife owns 4.96%. The plant is made up of: Unit 1 (620 MW), Unit 2 (614 MW) and Unit 3 (650 MW). It is located at Indiana, Pa., about 60 miles east of Pittsburgh. The plant is strategically located in mid-Atlantic region with access to both PJM Interconnection (MAAC region) and the New York ISO.

Homer City has lately been installing NID SO2 scrubbers on Units 1 and 2. Unit 3 got a scrubber in 2001. Unit 1 scrubber construction reached substantial completion in the first quarter of 2016. Unit 1 met or exceeded performance guarantees during the testing period. The Unit 2 scrubber tie-in was completed in May 2016, and was expected to reach substantial completion in July 2016, with final acceptance expected in the fourth quarter of 2016.

The presentation noted that Homer City, in consultation with NRG Energy (as the third-party asset manager), determines the optimal Capital Expenditure and Major Maintenance Plan for the Homer City Station.

Homer City said it benefits from a grandfathered PJM Interconnection-New York ISO transmission arrangement. Homer City can transmit up to 471 MW to NYISO Zone P without being assessed congestion charges. The 2010-2015 average annual NYISO Net Revenue was around $18 million. The company noted that announced retirements/mothballing of 1,653 MW and high barriers to entry for new build facilities will increase constraints in NYISO, supporting a robust energy margin from future sales from Homer City into New York Zone P. 

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.