Edison Mission inks settlement with Edison International, noteholders

By Caroline Salls

Pittsburgh, Feb. 19 - Edison Mission Energy entered into a settlement with Edison International and creditors holding a majority of its outstanding senior unsecured notes under which Edison Mission's plan of reorganization will be amended and all of the claims between the company and Edison International will be extinguished, according to an 8-K filed Wednesday with the Securities and Exchange Commission.

The settlement is subject to approval by the U.S. Bankruptcy Court for the Northern District of Illinois. The company said the plan confirmation schedule is expected to be continued to accommodate notice of the amendment to creditors.

Under the settlement, Edison Mission will emerge from bankruptcy free of debt but will remain an indirect wholly owned subsidiary of Edison International, which will continue to consolidate the company for income tax purposes.

On the plan effective date, all Edison Mission assets and debts that are not otherwise discharged in the bankruptcy or transferred to a subsidiary of NRG Energy, Inc., will be transferred to a newly formed trust or other entity established to make distributions under the plan, with the exception of the income tax attributes to be retained by the Edison International consolidated income tax group, some tax and pension liabilities that are being assumed by Edison International, and Edison Mission's indirect interest in Capistrano Wind Partners and a small hydro-electric project.

Trust payment details

In addition, Edison International has agreed to pay to a reorganization trust amounts equal to 50% of Edison Mission's federal and California income tax benefits generated as of the effective date that were not previously paid to Edison Mission under a tax allocation agreement that expired on Dec. 31.

On the effective date, $225 million of the amount due to the trust will be paid in cash, with half of the balance payable on each of Sept. 30, 2015 and Sept. 30, 2016, together with interest accruing at 5% from the effective date.

According to the 8-K, the settlement sets a current estimate of Edison Mission tax attributes at $1.19 billion. The company said that estimate will be updated through a procedure included in the agreement, which is expected to take up to six months from the effective date.

When the estimate is finalized, the two installment payments will be fixed, and Edison International will deliver to the trust two zero-coupon promissory notes representing its obligation to make the payments.

If the final estimate is unchanged from its current amount, the amount of each promissory note would be $185 million plus interest.

Parent assumptions

Also under the settlement, Edison International will assume roughly $350 million in Edison Mission obligations, comprised of federal and certain state income tax, qualified and executive pension and related liabilities.

Under the plan, Edison International and its subsidiaries will also be beneficiaries of bankruptcy court orders releasing them from claims of third parties in Edison Mission's case, and the trust will be obligated to set aside $50 million in escrow to secure its obligations to protect against any liabilities not discharged in the bankruptcy for which the trust remains responsible.

The escrowed amount will decline over time to zero on the later of Sept. 30, 2016 and the date on which specified third-party claims pending as of that date are resolved.

Plan terms

Plan creditor distributions will include the following:

• Holders of priority claims against Edison Mission and its debtor subsidiaries will be paid in full in cash;

• Holders of secured claims against Edison Mission, the debtor subsidiaries and the Homer City debtors will be paid in full in cash or receive another treatment that renders the claims unimpaired;

• Holders of general unsecured claims against the debtor subsidiaries will receive full payment of principal amount in cash;

• Holders of assumed liability general unsecured claims against Edison Mission will receive payment in full in cash under the terms of a purchase agreement;

• Holders of not-assumed liability general unsecured claims against Edison Mission and joint-liability general unsecured claims will receive a share of net sale proceeds, net settlement proceeds and new interests. The net settlement proceeds were not included in the previous version of the plan;

• Holders of allowed claims against the Homer City debtors will be paid in absolute priority from the Homer City wind-down proceeds for the applicable debtor;

• Holders of intercompany claims and subordinated claims will receive no distribution;

• Edison Mission interests will be reinstated. These interests were previously scheduled to be cancelled; and

• Intercompany interests in subsidiary debtors will be reinstated, and Homer City debtor interests will be canceled.

Edison Mission, a Santa Ana, Calif.-based owner, operator and leaser of a portfolio of electric generating facilities, filed for bankruptcy on Dec. 17, 2012. Its Chapter 11 case number is 12-49219.

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