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Bankruptcy: FirstEnergy exclusivity extended, but Exelon suit clouds path

The bankruptcy court overseeing the Chapter 11 proceedings of FirstEnergy Solutions Corp. extended the exclusive periods for the company to file and solicit acceptances to a reorganization plan through Feb. 25, 2019, and April 25, 2019, respectively, according to a court order entered last week in the case.

In its motion filed in late October, the company had sought slightly longer exclusivity extensions, through March 26, 2019, and May 24, 2019, respectively, saying it was in "the early stages" of negotiating a reorganization plan with creditors.

Meanwhile, however, a lawsuit filed against the company regarding a previous agreement to sell its retail generation assets could limit the potential reorganization paths open to the company.

In its October exclusivity extension motion, the company said it was continuing to "pursue a dual-path exit from Chapter 11" in which the company was simultaneously working toward "a creditor-supported plan of reorganization while maintaining the option of pursuing potential sale transactions for some or all of the assets owned by the debtors." The company further said that it was in the process of "refreshing" its business plan, first shared with parties in interest in June, and that the new business plan would be ready in early 2019.

The company agreed in early July to sell its retail power business to Exelon Corp. competitive subsidiary Exelon Generation Co. LLC for $140 million.

According to an adversary action filed by Exelon on Nov. 26, however, the company might be rethinking that transaction in light of the current status of plan negotiations.

According to the lawsuit filed with the bankruptcy court in Akron, Ohio, following the announcement of the Exelon deal no competing qualified bid was submitted for the assets, so under the bidding procedures in place Exelon was automatically deemed the successful bidder and a hearing to approve the sale was set for Sept. 12.

Before that hearing could occur, however, FirstEnergy Solutions asked Exelon for a delay to allow creditors additional time to review the transaction. The sale hearing was then reset for Oct. 12.

But FirstEnergy Solutions delayed the sale hearing a second time, to Oct. 26, telling Exelon that the company’s creditors "were attempting to develop an alternative reorganization plan that may contemplate [the company] retaining the purchased assets which [it] had agreed to sell to Exelon," and that creditors could "potentially object to the transaction."

Following two more delays, the sale hearing is currently scheduled for Dec. 17.

The delays have now pushed Exelon and FirstEnergy Solutions up against a key deadline.

If the sale does not close by Dec. 31, then either party may terminate the purchase/sale pact, provided that the terminating party is not in breach of the agreement.

According to the lawsuit, Exelon is seeking a declaratory judgment that FirstEnergy Solutions breached the agreement by failing to use its "reasonable best efforts ... to consummate the transaction as promptly as practicable," as evidenced by the many hearing delays. That would prevent FirstEnergy Solutions from terminating the agreement on the grounds that a sale did not close by Dec. 31.

On Nov. 12, Exelon declared to FirstEnergy Solutions in a letter that the latter company was in breach of the agreement, and on Nov. 16, FirstEnergy Solutions denied in a response that it was in breach.

In a statement Nov. 27, FirstEnergy Solutions said it was reviewing the Exelon lawsuit and said that it "remains committed to pursuing a path that is focused on maximizing the value of the company's assets and continuing to service its customers."