Talen Energy on Monday filed for Chapter 11 bankruptcy protection for its Talen Energy Supply (TES) subsidiary, citing rising natural gas prices, greater hedging collateral requirements and lawsuits stemming from the unit’s Texas operations during Winter Storm Uri in 2021 (22-90054).
The company announced Tuesday that TES has secured $1.76 billion of debtor-in-possession financing from Citigroup, Goldman Sachs and RBC Capital Markets in a restructuring agreement consisting of a $1 billion term loan, a $300 million revolving credit facility and a $458 million letter of credit facility.
TES also executed a restructuring deal with a group of bondholders who will participate in an equity rights offering of up to $1.65 billion and an agreement to turn more than $1.4 billion of the unsecured notes into equity.
The secured creditors, who are owed nearly $2.9 billion, are expected to be fully paid under the proposed agreement, according to court documents.
“TES expects to continue its day-to-day business in the normal course and intends to move as quickly as possible through the process,” Ryan Leland Omohundro, managing director for Alvarez & Marsal, Talen’s restructuring advisor, said in a filing Tuesday. “TES has filed customary ‘first day’ motions with the court to ensure no interruption to employee wages, healthcare, and other benefits as well as the ability to conduct routine business with vendors and other business partners, including the resumption of hedging activities. TES’ plants will continue to generate needed electricity for the markets they serve.”
TES’s generation portfolio consists of 18 facilities located in PJM, ERCOT and ISO-NE, producing around 13,000 MW of power. Its largest operations include the 2,254-MW Susquehanna nuclear plant, the 1,711-MW Martins Creek natural gas plant and the 1,518-MW Montour and 1,422-MW Brunner Island coal plants, all in Pennsylvania.
The parent company, Talen Energy Corp., and its crypto mining operation are not part of the bankruptcy filing.
Talen, which is based in The Woodlands, Texas, listed assets and debts of more than $10 billion in the Chapter 11 filing at the U.S. Bankruptcy Court for the Southern District of Texas in Houston.
The filing said TES started the Chapter 11 proceeding because of “immediate and significant liquidity concerns that can be traced back to the sudden and sustained rise of natural gas prices in late 2021.” The company said the natural gas prices “sharply increased” collateral requirements for hedging activities and resulted in an “unexpected squeeze on available cash.”
TES remains subject to several lawsuits, court filings said, including litigation over allegations that Talen Texas facilities were unprepared to handle the extreme weather during Uri and were subject to “other operational failure.”