NRG Energy Subsidiary Files for Bankruptcy

GenOn, a subsidiary of NRG Energy Inc., filed for bankruptcy Wednesday, June 14 after reaching an agreement with its bondholders to eliminate $1.75 billion of its debt and restructure itself as a standalone company.

A securities filing , made after the company reached a debt structuring agreement in May, revealed information regarding GenOn’s bankruptcy filing and current financial state. With many similar wholesale power companies struggling with low electricity prices, bankruptcy filings across the industry are becoming more common.

NRG is the largest independent power provider in the United States. In February, it appointed a pair of new directors and agreed to a deal with Elliott Management and Bluescape Energy Partners to sell off some assets and cut costs. The two funds now own a 9.4 percent stake in NRG.

This bankruptcy filing will transfer ownership of GenOn to the senior noteholders of the company and away from NRG. GenOn currently operates 32 power plants across eight states, with a total production capacity of about 15,394 megawatts. About two-thirds of this power comes from natural gas sources. Cheap natural gas found in shale fields has brought down the prices of electricity in recent years, which has shrunk margins for wholesale power generation companies that rely on natural gas.

Details of the Deal

Holders of GenOn Americas Generation notes will receive cash payments of 92 percent of the principal of the outstanding $695 million, plus interest. In the debt elimination deal, NRG and GenOn will transition their shared services to a third party, while NRG will pay a $261.3 million cash settlement to GenOn. NRG will also be responsible for a $330 million letter of credit to GenOn.

NRG purchased GenOn for $1.7 billion in 2012. Current NRG President and CEO Mauricio Gutierrez said the bankruptcy filing will help GenOn continue to operate while helping NRG simplify its operations in a way that allows it to maintain strong, manageable finances.

Also as part of the deal, senior noteholders will have the right to participate in a new offering of notes valued at $700 million, which will refinance the company after its emergence from Chapter 11 bankruptcy.

GenOn is far from the only energy provider to experience financial strains in recent years. Exelon Corp. recently hired a debt restructuring advisor, indicating a potential Chapter 11 filing. It already has plans to close one nuclear plant. Energy Future Holdings Corp., the largest power generation company in Texas, filed for bankruptcy in 2014. FirstEnergy Corp, another major energy firm, looks to exit its merchant business by mid-2018.

To learn more about the bankruptcy filing process and to determine your best path forward, consult a skilled Denver bankruptcy attorney with Long & Long, P.C.