Homer City Funding pre-pack disclosure statement OK'd; plan confirmed

By Jim Witters

Wilmington, Del., Dec. 6 - Homer City Funding LLC received approval for its disclosure statement and confirmation of its pre-packaged Chapter 11 bankruptcy plan during a Dec. 6 hearing in the U.S. Bankruptcy Court for the District of Delaware.

No objections were filed regarding the disclosure statement or the plan, and the plan received unanimous support from voting creditors.

David Buchbinder of the U.S. Trustee's Office said the plan is a restructuring for senior lenders and bondholders and a pass-through plan for other creditors.

Reorganization plan

As previously reported, Homer City Generation, LP, General Electric Capital Corp., EFS-N Inc. and Metropolitan Life Insurance Co. have entered into a plan of reorganization support agreement with holders of roughly 76% of bonds issued by Homer City Funding.

According to the disclosure statement, facility operator EME Homer City did not make a required Oct. 1 lease rent payment.

As a result, the company said, the owner lessors and Homer City Funding failed to make payments on their lessor notes and existing bonds.

Under the agreement, the parties committed to support and implement a reorganization and restructuring of Homer City Funding and its obligations through a solicitation of votes on a pre-packaged Chapter 11 plan of reorganization.

In addition, the support agreement requires the applicable parties to forbear from exercising remedies under existing operative documents during the term of the support deal.

Restructuring transactions

The plan calls for a series of restructuring transactions, including a Sept. 21 master transaction agreement.

The restructuring transactions eliminate the existing organizational and contractual structure associated with the company's Homer City plant and simplify the capital structure.

GECC revolver

The company said other transactions to be completed under the plan include the issuing by GECC of new secured bonds in exchange for the existing bonds, as well as GECC's entry into an up to $75 million new revolving credit facility.

The facility will have a five-year maturity with automatic five-year extensions.

Interest will be Libor plus 550 basis points.

The transactions also include an agreement with a third-party operator for the operation and maintenance of the plant.

New bond terms

The new bonds will have the same maturity and cash interest rate as the existing bonds.

In addition, interest payments on the new notes will be made at a payment-in-kind basis at 50 bps above the existing cash interest rate from Oct. 1 to April 1, 2014, at Homer City Funding's option.

That rate will increase by an additional 50 bps if substantial completion of the project is delayed under specified circumstances beyond Nov. 29, 2014.

The new secured bonds will be voluntarily callable at any time by the surviving owner lessor at 115% of par from the date of issuance through Aug. 1, 2013, 107.5% of par from Aug. 2, 2013, through Aug. 1, 2014, 103.5% of par from Aug. 2, 2014, through Aug. 1, 2015, and at par thereafter.

However, if an engineer-procure-construct agreement is amended or modified to delay the guaranteed substantial completion date for both units one and two at the facility beyond Aug. 31, 2014, other than for any delay caused by Kiewit Corp. or substantial completion does not occur for both units as a result of the termination of the engineer-procure-construct agreement by Kiewit, the redemption price for the new secured bonds will not be less than 107.5% for any period before substantial completion.

Also, after any delay amendment on and after the date that substantial completion for both units has occurred, the redemption price will be paid in accordance with the agreement.

A payment default under an engineer-procure-construct agreement, the termination of the engineer-procure-construct agreement or delivery of a notice of termination of the engineer-procure-construct agreement at any time when less than $325 million has been paid by a GE contract obligor toward the project will constitute an event of default under the new secured bonds, except when the termination results from a change in environmental laws and the facility is capable of being in compliance with the laws while operating at a monthly average availability factor of 80%.

Creditor treatment

Treatment of creditors under the plan includes:

• Holders of priority non-tax claims will be paid in full in cash;

• Holders of existing bond claims will receive a share of new secured bonds, with a principal amount equal to $174 million for the 8.137% senior secured bonds due 2019 and $465.98 million for the 8.734% senior secured bonds due 2026, plus interest due on the bonds for the period of April 1, 2012 through Sept. 30;

• Holders of other claims will be unimpaired. The company said it does not believe there will be any other claims; and

• Holders of equity interests will receive no distribution.

HCF Charitable Remainder Trust holds 100% of Homer City's equity.

The Homer City, Pa.-based company owns three coal-fired electric generating units, which it collectively refers to as the Homer City plant. The Chapter 11 case number is 12-13024.

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