Talen Energy files for Chapter 11

July 2022 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

July 2022 Issue

In a bid to substantially reduce its $4.5bn debt, independent power producer Talen Energy Corporation (TEC) has entered into a restructuring support agreement (RSA) to strengthen the financial position of its subsidiary, Talen Energy Supply LLC (TES).

In order to effectuate the restructuring contemplated by the RSA, TES and certain of its subsidiaries have voluntarily filed for reorganisation under Chapter 11 of the US Bankruptcy Code. Pursuant to the RSA, the company plans to confirm its plan of reorganisation approximately six months following the commencement of its restructuring.

The RSA includes a new equity investment of up to $1.65bn, which will accelerate TES’ clean power transformation, advance carbon-free data centre growth initiatives and maximise value to stakeholders.

In addition, TES has secured $1.76bn of debtor-in-possession (DIP) financing led by Citigroup, Goldman Sachs and RBC Capital Markets. The DIP financing is comprised of a $1bn term loan, a $300m revolving credit facility and a $458m letter of credit facility. The $1bn term loan is being provided by an investor group of leading financial institutions.

TES expects to continue its day-to-day business in the normal course and intends to move as quickly as possible through the Chapter 11 process.

“Our company is at an important inflection point to strategically reposition TES for long-term value creation,” said Alejandro Hernandez, chief executive of TEC. “By restructuring TES’ balance sheet through an in-court process, we will create a strong capital structure suitable for today’s elevated commodity market, position the company for growth, and continue to build upon the many operational achievements we have made in recent years.”

Through its subsidiary, TES, TEC is one of the largest competitive power generation and infrastructure companies in North America. TES owns or controls approximately 13,000 megawatts of generating capacity in wholesale US power markets, principally in the Mid-Atlantic, Texas and Montana.

TEC, its Cumulus Growth subsidiary, and TES’ LMBE subsidiaries are not part of the Chapter 11 process. TEC’s Cumulus Growth platform will continue executing on its business plan, constructing carbon-free hyperscale data centres and digital coin processing facilities, as well as renewable energy and battery storage development projects to meet rapidly growing consumer demand for clean, reliable energy.

These projects, together with TES’ generation assets, and complementary decarbonisation projects, will advance the transformation of the overall business into a clean energy and digital infrastructure platform.

“This transformation must be accompanied by balance sheet repair and equity capital to drive the long-term success of the Talen-Cumulus platform and our people,” continued Mr Hernandez. “With leading carbon-free nuclear and baseload generation assets critical to grid resilience, and Cumulus’ growing investment in energy transition growth projects, TEC’s transformation will create significant opportunities for value creation.”

TES has retained Weil Gotshal & Manges LLP as its legal adviser, Evercore as its investment banker and Alvarez & Marsal as its financial adviser for its restructuring. TEC is represented by PJT Partners as financial adviser and Vinson & Elkins as legal counsel.

John Chesser, chief financial officer at TEC, concluded: “As we work to strengthen TES’ financial position through the Chapter 11 process, we will remain focused on taking care of our people and communities, investing in the reliability of our assets through decarbonization and other capital projects, and driving future value creation.

Fraser Tennant