Riverstone Holdings LLC-backed Talen Energy Supply LLC voluntarily filed for Chapter 11 bankruptcy on May 9 as part of a restructuring agreement that includes $1.76 billion of debtor-in-possession financing and new equity investment of up to $1.65 billion.
In December 2021, Talen Energy Supply, or TES, secured an $848 million first-lien revolving credit facility. The facility allowed the independent power producer to avoid potential liquidity issues ahead of the winter heating season. The company expected its cash deficit to reverse in early 2022 as natural gas prices climbed, according to a May 10 declaration by Ryan Leland Omohundro, Alvarez & Marsal's managing director and restructuring adviser. However, a requirement to pay off $114 million of unsecured notes due in 2021 left little collateral available for hedging contracts.
"The significant increase in natural gas prices in 2021 and concurrent increase in power prices resulted in the debtors being required to provide cash collateral in large amounts as the exchange-traded hedges moved further out of the money — reaching as high as $451 million in October," Omohundro told the court. "In turn, this caused a significant liquidity squeeze for the debtors" that prevented TES from avoiding near-term price volatility.
With an "open" hedge book, Omohundro continued, day-ahead and real-time price declines in the PJM Interconnection LLC and Electric Reliability Council Of Texas Inc. markets particularly pressured TES. (U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, 22-90054)
The debtors include all wholly owned TES subsidiaries, except for Talen Receivables Funding LLC and LMBE-MC Holdco I LLC and its three subsidiaries. TES parent Talen Energy Corp. and its Cumulus Growth Holdings LLC are also excluded from the Chapter 11 proceeding. TES expects its assets to continue operating throughout the restructuring process, expected to last six months.
"Our company is at an important inflection point," Talen Energy CEO Alejandro Hernandez said in a statement. "By restructuring TES' balance sheet through an in-court process, we will create a strong capital structure suitable for today's elevated commodity market."
TES retained Evercore Group LLC as its investment banker for the Chapter 11 process, and the debtor-in-possession facility funding is led by The Goldman Sachs Group Inc., Citibank NA and RBC Capital Markets LLC.
Talen Energy has committed to exiting coal generation, expanding battery storage and co-investing in about 1,400 MW of utility-scale renewable energy projects over the next five years. The company also recently formed a bitcoin mining joint venture with TeraWulf Inc. with plans to develop as much as 300 MW of fossil-free mining capacity by Talen Energy's Susquehanna Nuclear power plant in Pennsylvania.
Debtors Talen Texas LLC, Talen Energy Marketing LLC and other TES affiliates remain subject to lawsuits resulting from a February 2021 winter storm that triggered widespread power outages, according to the May 10 declaration.
Talen Energy Corp. was spun off from PPL Corp. and combined with Riverstone's generation assets in a transaction announced in June 2014. Riverstone acquired the remainder of Talen in a deal that closed in December 2016.
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