GenOn units agree to sell two electric facilities for $390.3 million

By Caroline Salls

Pittsburgh, March 23 – GenOn Energy, Inc. announced Friday that some of its wholly owned subsidiaries entered into a purchase and sale agreement with Stonepeak Infrastructure Partners subsidiary Stonepeak Kestrel Holdings LLC under which Stonepeak agreed to purchase all of the right, title and interest in GenOn’s canal units 1 and 2 electricity generating facilities.

GenOn said its affiliates entered into the purchase agreement with the support of a majority of its noteholders.

Total proceeds are expected to be $390.3 million, including an expected closing purchase price of $320 million, estimated working capital of $32.5 million, an expected refund of $13.5 million from GenOn parent NRG Energy, Inc. in connection with a Canal 3 option and an estimated $24.3 million of post-closing excess fuel inventory payments.

The company said the closing price is subject to adjustment for the net working capital of the business calculated as of the closing date and upward adjustment of $13.5 million if the Canal 3 transaction does not close because of a debt financing failure at Canal 3.

The transaction is expected to close early in the third quarter.

Cooperation agreement amended

GenOn said it previously entered into a cooperation agreement with NRG under which GenOn obtained both a rejection option through Jan. 22 and a purchase option through March 31 for NRG’s Canal 3 power generation facility.

On Thursday, GenOn entered into an amendment to the cooperation agreement providing for direct negotiation by NRG with a third-party purchaser of Canal 3, a refund from NRG of $13.5 million of GenOn’s prepayment of the Canal 3 option upon the closing of a third-party sale of Canal 3 and a refund from NRG of the entire $15 million of GenOn’s prepayment of the Canal 3 option if the sale of the Canal facilities is terminated as a result of a breach by NRG of the purchase agreement for a third-party sale of Canal 3.

Concurrently with the execution of the GenOn purchase agreement, the company said an affiliate of Stonepeak and NRG entered into an agreement under which the Stonepeak affiliate agreed to purchase Canal 3 directly from an affiliate of NRG.

GenOn said it elected to allow the rejection option to expire unexercised and has agreed with Stonepeak to not exercise the Canal 3 option.

Bankruptcy case progress

The company said these sale transactions represent a critical milestone in the process of completing its Chapter 11 plan of reorganization, which was confirmed on Dec. 12.

Together with the previously announced signing of a purchase agreement for an estimated $520 million of gross cash proceeds for Hunterstown CCGT, GenOn said it estimates the realization of $910.3 million of gross cash proceeds, $886 million of which is expected by early in the third quarter, with an additional $24.3 million of post-closing excess fuel inventory payments within the next two years.

GenOn said it continues to make significant additional progress in exploring and evaluating value-maximizing alternatives for its various remaining interests. At this time, the company said it has decided not to seek further bids for its Bowline assets after receiving a number of bids, including a high bid of up to $240 million, based on the view that the bids received were inadequate and the implied EBITDA multiple of the highest bid was too low.

Accordingly, GenOn said it plans to retain Bowline and undertake operational and capital structure initiatives to maximize its profitability and cash flow.

Forbearance remains

GenOn said indirect subsidiary NRG REMA LLC remains under a forbearance agreement with PSEGR Conemaugh Generation, LLC, Conemaugh Lessor Genco LLC and an informal committee of REMA pass-through certificateholders related to events of default resulting from REMA’s failure to provide incremental qualifying credit support under leases and participation agreements.

The company said it continues to evaluate alternatives and participate in discussions with respect to GenOn’s equity interest and intercompany claims into REMA.

Credit Suisse Securities (USA) LLC is acting as exclusive financial adviser to GenOn related to the sale of the Canal facilities.

GenOn, a Princeton, N.J.-based power producer, filed for bankruptcy on June 14, 2017 in the U.S. Bankruptcy Court for the Southern District of Texas. The Chapter 11 case number is 17-33695.

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