Proposed agreement would extricate parent firm from coal, nuclear plant restructuring
By Andrew Scurria
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 24, 2018).
FirstEnergy Corp. has reached a settlement with creditors of its bankrupt power-generation businesses that would simplify their restructuring while extricating the parent company from the chapter 11 case.
The proposed deal with the nonbankrupt parent company requires approval from subsidiary FirstEnergy Solutions, or FES, and its affiliates and from the Ohio chapter 11 judge overseeing their restructuring.
If approved, the agreement covers potential claims surrounding FirstEnergy's obligations toward unprofitable coal and nuclear power plants in Ohio and Pennsylvania that are under bankruptcy protection. Research firm CreditSights said the settlement provides 15 cents on the dollar for holders of unsecured FES debt, some of which rallied nearly 20% Monday, according to FactSet.
The two largest bondholder groups in the bankruptcy support the agreement, according to a securities filing. FirstEnergy said it would try to bring the court-appointed committee of unsecured FES creditors on board with the terms.
Recoveries for creditors also depend on whether the Trump administration intercedes to keep the FES plants open. FES has sought an emergency lifeline from the U.S. Department of Energy to prop up those facilities, which have been unable to compete in unregulated markets with plentiful natural gas and state-subsidized renewables.
The settlement provides a combination of cash payments and tax notes from the parent designed to deliver $628 million in value to creditors, according to a securities filing. FirstEnergy agreed to take on pension payments, deferred compensation and retiree life insurance and medical claims arising from FES.
In return FirstEnergy would share in any bondholder recoveries above 60 cents on the dollar. FES and its affiliates are negotiating a restructuring of three nuclear plants while putting four fossil fuel operations and a retail power business on the block.
CreditSights analysts said the potential upside for FirstEnergy would incentivize the parent to continue pressing federal and state regulators for a bailout of FES facilities. The potential closure of FES facilities is testing the Trump administration's commitment to coal and nuclear as it weighs compelling the nation's largest grid operator to favor those fuel sources over alternatives.
FES has few allies in its campaign, which experts say would effectively end America's largest competitive electricity market. The bailout request is opposed by several power companies supplying the market and by industrial customers facing higher electricity costs.
The deal would also swing ownership of the coal-fired Pleasants Point power station in West Virginia to the chapter 11 estate from FirstEnergy's non-bankrupt affiliate Allegheny Energy Supply Co. AES said in February it would close Pleasants Point next year unless a buyer is found.
Creditors of the Bruce Mansfield coal-plant in Pennsylvania would receive a $787 million allowed unsecured claim in the bankruptcy that would be partially satisfied upon court approval of a restructuring plan.
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