Homer City Generation LP, which operates the 1,884-MW, coal-fired Homer City plant in Pennsylvania, announced Jan. 10 that it has reached a resolution with a substantial majority of its noteholders on a comprehensive financial restructuring plan that will significantly deleverage Homer City’s balance sheet and provide for an orderly transition of ownership.
The plant is expected to continue operating in the normal course as the company implements this restructuring plan in the coming weeks.
Homer City said it has entered into a restructuring support agreement (RSA) with approximately 86% of the holders of its outstanding 8.137% Senior Secured Notes due 2019 and 8.734% Senior Secured Notes due 2026. Among other things, the RSA provides for the noteholders to become majority equity owners in Homer City and for more than $600 million in principal and accrued interest to be eliminated from Homer City’s balance sheet.
To implement the terms of the RSA, Homer City expects to voluntarily file for a pre-packaged reorganization under Chapter 11 of the bankruptcy code in the U.S. Bankruptcy Court for the District of Delaware in the coming days. Homer City has begun the process of soliciting creditor approval for a proposed plan of bankruptcy teorganization that incorporates the RSA. Homer City expects to complete the pre-packaged reorganization on an accelerated basis early in 2017.
The company’s proposed reorganizationplan provides that trade creditors and other general unsecured creditors will be paid in full for their claims, which should facilitate an efficient Chapter 11 case.
Contemporaneously with entering into the RSA, Homer City and coal supplier CONSOL Energy (NYSE: CNX) have entered into a new two-year supply contract that will help Homer City meet its anticipated fuel needs through the end of 2018. In connection with this new contract, Homer City and CONSOL have settled litigation between them. CONSOL’s pending lawsuit, which had been stayed while the parties worked on a consensual resolution, will be dismissed once Homer City’s plan of reorganization becomes effective.
Homer City said it believes it has sufficient liquidity to continue its operations and meet its obligations in the ordinary course throughout the in-court restructuring process. As such, the company does not expect that it will seek debtor-in-possession (DIP) financing in connection with the Chapter 11 filing. Homer City intends to pay suppliers for all goods and services provided after the filing date under normal terms.
John Boken, a Senior Managing Director at Zolfo Cooper, will be appointed to serve as Chief Restructuring Officer to guide Homer City through the in-court restructuring process.
NRG Energy Services will remain in place as the plant operator under an amended Operations and Maintenance Agreement that currently runs through Dec. 31, 2017. As such, NRG personnel at Homer City will continue to operate and maintain the plant in the ordinary course.
GE Energy Financial Services will also continue as Asset Manager through the in-court restructuring process and will provide transitional assistance after the reorganization effective date to facilitate the ownership change.
Boken said: “As a result of this fully consensual restructuring and expedited pre-packaged Chapter 11 process, Homer City is expected to emerge as a more viable power generator in an increasingly more competitive energy marketplace. We anticipate that the substantially reduced debt load will also afford Homer City greater flexibility to invest in its operations and environmental compliance. Importantly, Homer City remains fully committed to upholding its environmental obligations as this process moves forward. We thank the personnel at Homer City for their ongoing hard work and look forward to completing the pre-packaged reorganization on an expedited basis.”
New deal with CONSOL has new coal terms
CONSOL and Homer City are parties to a Coal Sales Agreement, dated Jan. 6, 2014, pursuant to which Homer City was to purchase bituminous steam coal from CONSOL. The CONSOL Agreement was to expire on Dec. 31, 2015. On Oct. 1, 2015, the parties entered into an extension agreement which amended the terms on which sales and purchases of coal were to be made during the period from Oct. 1, 2015, to Dec. 1, 2015, and extended the period for purchases and sales on such amended terms through Dec. 31, 2017.
Pursuant to certain letter agreements entered into by Homer City and CONSOL in 2016, the parties agreed that CONSOL would sell the coal under the agreements at a price below the contract price (the “Interim Price”), but CONSOL reserved its right to seek to recover the difference between the Interim Price and the contract price under the extension agreement. In the complaint, CONSOL alleges, among other things, that Homer City anticipatorily breached and/or breached the extension agreement. CONSOL further alleges that entities affiliated with plant backer General Electric tortiously interfered with the contract between CONSOL and Homer City by instructing Homer City to breach the extension deal, said a Homer City backgrounder on the current financial situation.
CONSOL has asserted monetary damages and requested injunctive relief prohibiting Homer City from entering into any contract that would interfere with due and timely performance under the extension agreement and from making purchases of coal under alternate supply agreements. Monetary relief sought by CONSOL includes the difference between an Interim Price and the contract price for all of the tonnage required by the extension agreement, plus punitive damages for the alleged tortious conduct by the GE entities, interest, and costs in an amount to be determined. CONSOL has not specified a dollar amount of its alleged damages.
On Jan. 6, 2017, Homer City and CONSOL reached a settlement and executed a new coal supply agreement (the “New Coal Agreement”). The New Coal Agreement provides for the specified minimum monthly and quarterly delivery of coal by CONSOL to the plant, with an aggregate minimum of 1.2 million tons per year through the end of 2018 at specified prices, subject to Homer City’s right to purchase up to 300,000 additional tons during each of 2017 and 2018 at specified prices. Upon the occurrence of certain events, Homer City will be required to provide CONSOL a letter of credit. The New Coal Agreement will become effective upon the effectiveness of the bankruptcy plan and the assumption of the New Coal Agreement by Homer City in connection with the plan, provided that each event must occur on or before May 13, 2017.
Prior to the effectiveness of the New Coal Agreement, CONSOL will continue to provide coal to Homer City pursuant to terms consistent with the company’s current arrangement with CONSOL.