GenOn files plan based on restructuring support and lock-up agreement

By Caroline Salls

Pittsburgh, June 30 – GenOn Energy, Inc. filed its plan of reorganization and related disclosure statement Thursday with the U.S. Bankruptcy Court for the Southern District of Texas, according to an 8-K filed with the Securities and Exchange Commission.

As previously reported, the plan is based on a restructuring support and lock-up agreement between GenOn Energy and GenOn Americas Generation, LLC (GAG) and some of their subsidiaries, as well as NRG Energy, Inc., holders representing greater than 93% in principal amount of GenOn’s outstanding senior unsecured notes and holders representing greater than 93% in principal amount of GAG’s outstanding senior unsecured notes.

The company said the restructuring is expected to delever the GenOn entities’ balance sheet by $1.75 billion, facilitate GenOn’s transition to a stand-alone power generation company and consensually resolve potential claims the GenOn entities may have against NRG in connection with a December 2012 shared services agreement.

Transition services agreement

GenOn said NRG will facilitate a transition of shared services to a third-party services provider, but will continue to provide services during the transition period.

Specifically, NRG will provide GenOn with transition services at a rate of $84 million on an annualized basis during the pendency of the Chapter 11 cases and, if the companies’ settlement is approved by the court, NRG will provide GenOn with shared services at no charge for two months post-emergence and an option for up to two, one-month extensions for transition services at an annualized rate of $84 million post-emergence.

In addition, if the settlement is approved, GenOn will retain a $27 million credit against amounts owed to NRG for the post-bankruptcy period under the current shared services agreement, provided that to the extent GenOn has paid for services during the bankruptcy proceedings and the aforementioned credit has not been applied in full, NRG will, upon request by GenOn, reimburse such payments in cash up to the amount of any unused portion of the credit.

Under the settlement, NRG will provide consideration of $261.3 million in cash, continued and amended shared services, retention of historic pension liabilities under the existing NRG pension plans, including payment of $13.2 million of 2017 pension contributions due on account of GenOn employees, and other consideration in varying forms.

NRG will also consent to the cancellation of its equity interests in GenOn and will be entitled to the related worthless stock deduction for federal income tax purposes.

Financing

NRG will provide the GenOn entities with a fully cash collateralized letter-of-credit facility in an amount not to exceed $330 million. The facility will be used for the issuance of new and replacement letters of credit for hedging, regulatory and other credit support needs.

Reorganized GenOn will also enter into exit financing consisting of a senior secured revolving credit facility to be provided to the extent necessary to fund the reorganized GenOn entities’ working capital and other operational needs and an issuance of up to $900 million in secured notes.

Some consenting noteholders will have the right to purchase a share of the new notes in an offering to be conducted in accordance with procedures to be agreed by GenOn and consenting holders committing to backstop the notes offering.

The total principal amount of new notes to be issued in the offering may be reduced by the amount of non-ordinary course asset sales by reorganized GenOn and its subsidiaries or as mutually agreed by GenOn and the backstop parties.

Creditor treatment

Under the pre-arranged plan, holders of GenOn notes will receive 100% of the equity of reorganized GenOn, subject to dilution by a management incentive plan to be adopted by reorganized GenOn upon emergence.

If a noteholder has executed the restructuring support agreement, that noteholder will also receive a share of a $75 million cash payment, other cash distributions and, subject to eligibility restrictions, rights to participate in the new notes offering.

Holders of GAG notes will receive cash in the amount of $920 per $1,000 principal amount of notes plus interest through the date of the initial bankruptcy petition filing and, if the noteholder has executed the support agreement, a share of a $14.1 million cash payment and liquidated damages accruing at an annual rate of 6% of the principal amount of GAG notes outstanding plus interest as of the bankruptcy filing date.

Holders of general unsecured claims will be paid in full in cash.

Interests in GenOn will be cancelled, released and extinguished.

The disclosure statement hearing is scheduled for Aug. 3.

GenOn, a Princeton, N.J.-based power producer, filed bankruptcy on June 14. The Chapter 11 case number is 17-33695.

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