NRG Energy (NYSE: NRG) said in its Nov. 4 quarterly Form 10-Q financial report that it is looking at options, including bankruptcy, for its GenOn Energy affiliate, which operates mostly capacity in the mid-Atlantic region.
NRG said that $703 million of GenOn’s Senior Notes outstanding are current within the GenOn consolidated balance sheet and are due on June 15, 2017. “GenOn’s future profitability continues to be adversely affected by (i) a sustained decline in natural gas prices and its resulting effect on wholesale power prices and capacity prices, and (ii) the inability of GenOn Mid-Atlantic and REMA to make distributions of cash and certain other restricted payments to GenOn,” said NRG. “Based on current projections, GenOn is not expected to have sufficient liquidity to repay the senior notes due in June 2017. As a result of these factors, there is no assurance GenOn will continue as a going concern.”
NRG added: “GenOn is currently considering all options available to it, including negotiations with creditors and lessors, refinancing the senior notes, potential sales of certain generating assets as well as the possibility for a need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. During the second quarter of 2016, GenOn appointed two independent directors as part of this process. Any resolution may have a material impact on the Company’s statement of operations, cash flows and financial position.”
NRG noted that on Oct. 7, GenOn’s corporate credit rating was lowered by Moody’s from Caa2 to Caa3 and its probability of default rating was lowered from Caa2-PD to Caa3-PD. In addition, Moody’s also lowered the ratings of NRG REMA and GenOn Mid-Atlantic’s pass through certificates to Caa1 from B2.
NRG said that it has no obligation to provide any financial support to GenOn other than under the secured intercompany revolving credit agreement between it and GenOn and NRG Americas. The Form 10-Q added: “The Company cannot assure you that GenOn’s inability to continue as a going concern will not have a material impact on the Company’s statement of operations, cash flows and financial position including, among other things, if GenOn were to file for bankruptcy protection.”
GenOn Mid-Atlantic covers coal generation units at two generating facilities – Dickerson and Morgantown in Maryland – under operating leases. NRG REMA leases a 100% interest in the Shawville generating facility and 16.7% and 16.5% interests in the coal-fired Keystone and Conemaugh generating facilities, respectively. Notable is that the 597-MW Shawville Units 1-4 are undergoing a coal-to-gas conversion, with a commercial operation start on gas due in the fourth quarter of this year.
GenOn offers its own account of events
Said a separate Nov. 4 Form 10-Q filed by GenOn Energy: “GenOn Energy, Inc., a wholly owned subsidiary of NRG, is a wholesale power generator engaged in the ownership and operation of power generation facilities, with approximately 15,826 MW of net electric generating capacity located in the U.S. During 2016, GenOn completed the sales of the Aurora, Seward and Shelby facilities and deactivated Avon Lake Unit 7, which were the primary drivers resulting in a net decrease in operating generation capacity of 1,927 MW from December 31, 2015.
“GenOn Americas Generation is a wholesale power generator with approximately 7,907 MW of net electric generating capacity located, in many cases, near major metropolitan areas. GenOn Americas Generation’s electric generating capacity is part of the 15,826 MW of net electric generating capacity of GenOn.
“GenOn Mid-Atlantic operates and owns or leases 4,605 MW of net electric generating capacity in Maryland near Washington, D.C. GenOn Mid-Atlantic’s electric generating capacity is part of the 7,907 MW of net electric generating capacity of GenOn Americas Generation. GenOn Mid-Atlantic’s generating stations serve the Eastern PJM markets.
“As of September 30, 2016, GenOn has cash and cash equivalents of $1.2 billion, of which $483 million and $110 million is held by GenOn Mid-Atlantic and REMA, respectively. Under their respective operating leases, GenOn Mid-Atlantic and REMA are not permitted to make any distributions and other restricted payments unless: (a) they satisfy the fixed charge coverage ratio for the most recently ended period for four fiscal quarters; (b) they are projected to satisfy the fixed charge coverage ratio for each of the two following periods of four fiscal quarters, commencing with the fiscal quarter in which such payment is proposed to be made; and (c) no significant lease default or event of default has occurred and is continuing. Additionally, REMA must be in compliance with the requirement to provide credit support to the owner lessors securing its obligation to pay scheduled rent under its lease. As a result, GenOn Mid-Atlantic has not been able to make distributions of cash and certain other restricted payments since the quarter ended March 31, 2014 which was the last quarterly period for which GenOn Mid-Atlantic satisfied the conditions under its operating agreement. REMA has not satisfied the conditions under its operating agreement to make distributions of cash and certain other restricted payments since 2009.
“NRG, GenOn’s parent company, has no obligation to provide any financial support other than as described in Note 9, Related Party Transactions.
“GenOn is currently considering all options available to it, including negotiations with creditors and lessors, refinancing the senior notes, potential sales of certain generating assets as well as the possibility for a need to file for protection under Chapter 11 of the U.S. Bankruptcy Code. During the second quarter of 2016, GenOn appointed two independent directors and, during the third quarter of 2016, GenOn retained advisors as part of this process.”
GenOn’s portfolio as of Sept. 30 was 9,780 MW of gas-fired capacity, 4,199 MW of coal and 1,847 of oil.
- GenOn’s natural gas generation portfolio includes 325 MW related to the conversion of New Castle Units 3-5 in Pennsylvania from coal to natural gas which was completed in the second quarter of 2016. GenOn’s natural gas generation does not include 78 MW related to the Chalk Point capital lease which expired at the end of 2015, 352 MW related to Shelby which was sold on March 1, 2016, and 878 MW related to Aurora which was sold on July 12, 2016. GenOn’s natural gas generation portfolio includes 275 MW related to Choctaw Unit 1 which is in forced outage.
- GenOn’s coal generation portfolio does not include: 325 MW related to New Castle Units 3-5 in Pennsylvania, which were converted from coal to natural gas in the second quarter of 2016; 597 MW related to Shawville in Pennsylvania, which was mothballed on May 31, 2015, with plans to return to service with a natural gas addition in the fall of 2016; and 94 MW related to Avon Lake Unit 7 in Ohio, which was deactivated in the second quarter of 2016. In addition, GenOn’s coal generation does not include 525 MW related to the Seward plant in Pennsylvania, which was sold on Feb. 2, 2016.