Sorenson Communications file for Chapter 11 bankruptcy

April 2014 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

Mach Gen LLC, a New York based electricity generator backed by a number of financial institutions including Bank of America Corp and Credit Suisse Group AG, announced that it had filed for Chapter 11 bankruptcy protection in March.

The company filed for bankruptcy protection after it agreed a restructuring deal with a number of its key creditors. The deal attempted to reduce a portion of the company’s substantial debt pile by around $1bn and remove another $82m in annual interest payments. The deal was agreed with the creditor groups on 15 January. Mach Gen began soliciting votes for the scheme on 21 January.

In paperwork filed at the US Bankruptcy Court in Wilmington, Delaware, natural gas power plant owner Mach Gen listed assets of more than $500m and liabilities of more than $1bn. The company’s paperwork noted that “Mach Gen has faced significant interest expenses due to the leveraged nature of its balance sheet, which, in combination with declining revenues, has impacted Mach Gen’s ability to service its long-term debt”.

Under the company’s restructuring plan, senior lenders, who are owed around $627m, would see their debt converted into bankruptcy exit financing. Mach Gen’s junior lenders would see their $1.03bn of debt exchanged for 93.5 percent of new stock in the restructured company. The outstanding 6.5 percent of new shares in the company would go to the company’s existing equity holders. According to Mach Gen, the company’s general unsecured creditors would be paid in full under the restructuring plan.

Documentation lodged at the Bankruptcy Court notes that all of Mach Gen’s first-lien lenders, including Beal Bank USA, more than 75 percent of its second lien lenders and more than 85 percent of its current shareholders, have already pledged their support for the reorganisation proposal. Beal Bank will also provide the company with a $200m debtor in possession credit facility.

In the company’s court documentation, Mach Gen’s financial difficulties were attributed to a number of factors which have impacted not only upon Mach Gen, but have also affected the wider energy market in the US. Most notably, the financial crisis and resultant economic downturn have been responsible for a particularly damaging declining demand for power since 2008. That said, the company has been experiencing financial difficulties since the 2000s, shortly after the original financing arrangements were put in place. Furthermore, lower gas prices and a greater supply of renewable energy projects have also contributed to the company’s recent financial woes and declining revenues. Crucially, the company’s declining revenue has made it significantly harder for Mach Gen to service its heavy debt load.

The Chapter 11 application by Mach Gen is not the company’s first attempt at countering its financial difficulties. In 2008, sale proceeds from one of Mach Gen’s then four power facilities provided additional liquidity and borrowing capacity. Furthermore, in 2012 Mach Gen underwent two rounds of debt refinancing and attempted to sell off one of its three remaining generating facilities. However the company was unable to complete the sale, having failed to win regulatory approval for the transaction. As a result, Mach Gen began to consider a wider restructuring, talks around which have been ongoing since 2013. The company’s financial plight was laid bare last year, when Mach Gen generated around $350m in operating revenue in 2013, on a net loss of approximately $120m.

According to court documentation Citigroup Alternative Investments LLC holds a 1.1 percent stake in Mach Gen, Credit Suisse Securities holds an 8.7 percent stake, Merrill Lynch Genco II LLC a 13.9 percent share and Sola Ltd a 10.6 percent stake.

Richard Summerfield