BY Fraser Tennant
In a move to reduce its approximated £800m debt, natural gas plant operator Frontera Holdings LLC has filed for Chapter 11 bankruptcy protection in order to implement a comprehensive restructuring support agreement (RSA).
Frontera joins an expanding list of operators, which includes California Resources and a pair of natural-gas-fired power plants owned by Talen Energy Corporation, seeking Chapter 11.
Under the terms of the RSA, most of the company's debt will be converted into equity and the current term loan and revolving credit facility lenders will become the new owners of Frontera.
Throughout the restructuring process and beyond, Frontera expects that employees and vendors will continue to be paid and that the Frontera Generation Facility – the company’s 526MW, combined-cycle natural gas plant near Mission, Texas, which exports power to Mexico – will continue to generate electricity and serve its customers.
Frontera’s subsidiary entities in Mexico are not included in the Chapter 11 filing and also are continuing to operate in the ordinary course of business.
In bankruptcy court filings, Frontera attributed its Chapter 11 filing and RSA to the coronavirus (COVID-19) pandemic's massive disruption to demand for the debtors' energy production.
“These actions represent an important milestone to reducing debt and strengthening the company for the benefit of our stakeholders,” said Lee Davis, chief executive of Frontera. “Frontera intends to use the court-supervised process to create a sustainable capital structure and position the company to achieve long-term success.”
Currently, Frontera has $773m in debt under a secured term loan and revolving credit facility, as well as $171m in secured notes. Under this agreement, lenders agree to convert a substantial portion of the current term loan and revolving credit facility debt into equity. Once approved by the Bankruptcy Court, these lenders will become the company’s new owners.
Furthermore, Frontera has secured $70m in debtor-in-possession (DIP) financing to ensure liquidity throughout the Chapter 11 process. The company's liquidity position will allow the Frontera Generation Facility to operate the business in the ordinary course and fund Chapter 11 administrative costs.
The DIP financing is part of $145m in exit financing that will be provided by lenders upon Frontera’s emergence from the Chapter 11 process.
News: Frontera Holdings Files for Chapter 11 in Southern Texas Court