Frontera Generation Holdings LLC entered into a restructuring support agreement, or RSA, with about 97% of its term loan lenders, 100% of its noteholders and its sole equityholder, Lonestar Generation LLC, providing for most of the company's debt to be converted into equity, the company announced. To implement the RSA, the company filed for Chapter 11 in bankruptcy court in Houston.
The company said it has $773 million in debt under a secured term loan and revolving credit facility, as well as $171 million in secured notes. The company said its Mexican subsidiaries are not included in the filing.
The company also said it secured a $70 million in debtor-in-possession facility to "ensure liquidity throughout the Chapter 11 process." The company further said the DIP would "be a part of $145 million in exit financing provided by lenders upon emergence from Chapter 11."
In bankruptcy court filings, the company attributed the Chapter 11 filing to "the COVID-19 pandemic's massive disruption to demand for the debtors' energy production."
More specifically, according to the first day declaration filed in the case by Brant Meleski, the company's vice president, the RSA provides that lenders under the DIP would receive an equity-based fee upon emergence from Chapter 11 comprised of 87.5% of the equity of the reorganized company. Holders of credit agreement claims would receive the remaining 12.5% of the new equity along with $75 million in new second-lien take-back debt, while noteholders would receive $7.5 million of cash, to be funded by Lonestar Generation, along with a "warrant package."
Trade claims would be paid in full in the ordinary course of business.
As for the DIP, court filings show the lenders are an ad hoc group of term loan lenders. The company is seeking to access $30 million upon interim court approval. Interest is set at L+1,300, with a 1% Libor floor. Milestone deadlines under the DIP include the filing of a reorganization plan and disclosure statement by Feb. 17, disclosure statement approval by March 24, plan confirmation by April 28 and emergence from Chapter 11 by May 19.
The company operates a 526-MW, combined-cycle natural gas plant near Mission, Texas, known as the Frontera Generation Facility, and exports power to Mexico.
Kirkland & Ellis and Jackson Walker LLP are serving as legal counsel to the company, PJT Partners is serving as investment banker, and Alvarez & Marsal is serving as financial advisor. Term loan lender advisors include Akin Gump Strauss Hauer & Feld and Houlihan Lokey, while noteholders are being advised by Morgan, Lewis & Bockius and Silver Foundry.