New MACH Gen LLC

6/11/18

In ⓶⓶Is A Fresh Batch of Chapter 22s Coming?⓶⓶, we asked "Did Talen Energy's Acquisition of MACH Gen Miss the Mark? (Short Synergy)". Apparently the answer is yes to both questions: MACH Gen is now in bankruptcy court for the second time in four years. 

New MACH Gen LLC and four affiliated debtors have filed a prepackaged chapter 11 bankruptcy that seeks to partially equitize its first lien debt, transfer interests in the Harquahala facility in Arizona to the First Lien Lenders, eliminate approximately $95 million of debt off of the company's balance sheet, shed approximately $20 million of annual interest expense, and reorganize around two of the debtor entities. If the plan is effectuated, the company will emerge from bankruptcy with a (slightly) trimmed down balance sheet including (i) $512 million of first lien debt split among a revolving credit facility and two term loans and provided by the prepetition First Lien Lenders and (ii) approximately $25 million in a new second lien term loan provided by Talen Energy Supply LLC. The First Lien Lenders have also agreed to provide a $20 million DIP credit facility. The proposed plan of reorganization appears to be fully consensual among the various debt and equity interest holders. Accordingly, the company hopes to confirm the plan within 45 days of filing and obtain regulatory approvals another within an additional 45 days. 

The company is the owner and manager of a portfolio of three natural gas-fired electric generating facilities: (1) a 1,080 MW facility located in Athens, New York that achieved commercial operation on May 5, 2004 (the “Athens Facility”); (2) a 1,092 MW facility located in Maricopa County, Arizona, that achieved commercial operation on September 11, 2004 (the “Harquahala Facility”); and (3) a 360 MW facility, located in Charlton, Massachusetts, that achieved commercial operation on April 12, 2001 (the “Millennium Facility,” and collectively with the Athens Facility and the Harquahala Facility, the “Facilities”). The company generates revenue by selling energy, capacity and ancillary services from the Facilities into relevant power markets. In the last fiscal year, the company generated approximately $269 million of operating revenue at a net loss of approximately $10 million. 

These numbers shouldn't really be surprising. In May we highlighted the following:

"Here is where natural gas prices were (i) in April 2014 around the time of the bankruptcy filing (5.97), (ii) in November 2015 (2.08) at the time of the Talen acquisition, (iii) in June 2016 (2.57) at the time of the announced Riverstone transaction, (iv) in December 2016 at the time the transaction closed (3.58) and (v) where they stand now (~2.69):"

This change in the natural gas market (and regulatory hurdles) flipped "compelling future projections" to "a challenging operating environment" and, in 2016, the company "significantly underperformed" its way to a net loss of $589.8 million. Given the current environment for natural gas, we'll see whether this transaction does the trick. After all, as the company notes, "[a]though the Plan will result in the elimination of debt, Reorganized MACH Gen will continue to have a significant amount of indebtedness after the Effective Date." See you in four years? 

• Jurisdiction: D. of Delaware
• Capital Structure: $132.9mm first lien RCF (CLMG Corp., Beal Bank SSB), $465.1mm first lien TL,      
• Company Professionals:
  • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Kenneth Enos, Elizabeth Justison)
  • Financial Advisor: Alvarez & Marsal LLC (Ryan Omohundro)
  • Investment Banker: Evercore LLC (Bo Yi)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
• First Lien & DIP Agent: CLMG Corp.
• First Lien Lenders: Beal Bank USA/SSB
  • Legal: White & Case LLP (Thomas Lauria, Scott Greissman, Elizabeth Feld)
• Talen Energy Supply LLC 
  • Legal: Skadden Arps Slate Meagher & Flom LLP (Lisa Laukitis)