For the second time in four years, Talen Energy Corp.-owned New MACH Gen LLC and certain of its subsidiaries filed a prepackaged bankruptcy plan under Chapter 11.
"The company's existing balance sheet assumed higher capacity payments and higher margins from our three assets, but poorer-than-expected results delivered lower cash flows, impeding our ability to service debt," New MACH Gen CFO John Chesser said in a June 11 news release. Under the proposed restructuring agreement, New MACH Gen and its subsidiaries anticipate emerging from bankruptcy proceedings filed in Delaware in the second half of 2018.
In a disclosure statement to shareholders, New MACH Gen attributed its financial difficulties to "industry-specific events that created a challenging operating environment adversely impacting MACH Gen and its competitors." Further, it also "faced significant interest expenses due to the leveraged nature of its balance sheet, which, in combination with the underperforming plants, further impacted MACH Gen's available liquidity."
New MACH Gen generated $269 million of operating revenue in 2017, according to the disclosure statement, at a net loss of $10 million. The company had approximately $503 million in assets and $654 million in liabilities, as of March 31. New MACH Gen's assets consist of the 1,092-MW combined-cycle Harquahala plant in Maricopa County, Ariz., the 1,080-MW Athens combined-cycle plant in Greene County, N.Y. and the 360-MW combined-cycle Millennium Power plant in Worcester County, Mass.
Controlling interests in Talen are indirectly held by private equity firm Riverstone Holdings LLC.
Talen Energy acquired the old MACH Gen LLC in November 2015 for approximately $1.18 billion, a year after MACH Gen emerged from its previous bankruptcy proceeding. In 2014, New MACH Gen, together with subsidiaries MACH Gen GP LLC, Millennium Power Partners LP, New Athens Generating Co. LLC and New Harquahala Generating Co. LLC, also attributed their Chapter 11 filing to significant debt coupled with declining revenues.
"Despite the highly-leveraged nature of the business at acquisition, Talen Energy forecasted MACH Gen to generate $120 million of EBITDA and $30 million in free cash flow in 2016, the first full year following closing," the companies said in their disclosure statement. "Unfortunately, and concurrent with industry-specific events that created a challenging operating environment adversely impacting MACH Gen and its competitors, the 2016 results significantly underperformed with a net loss of approximately $589.8 million."
In its latest reorganization plan, New MACH Gen entered a restructuring support agreement with its first lien lender, Beal Bank USA. The restructuring is expected to be completed in the second half of 2018 and to eliminate approximately $95 million in debt from New MACH Gen's first lien facilities.
Under the agreement, New MACH Gen will sell all of the equity interests in New Harquahala Generating Co. LLC, the operating entity for the Harquahala plant, to Beal Bank USA or its designee, in exchange for a reduction of New MACH Gen's debt by $150 million under an existing credit facility.
Further, the company's first-lien credit facility will also be refinanced and its maturity extended to 2023, and New MACH Gen's equity owner will also provide additional financing to the company.
Evercore will serve as New MACH Gen's financial adviser, Alvarez & Marsal North America LLC as its restructuring adviser, and Young Conaway Stargatt & Taylor LLP as its legal adviser.
New MACH Gen and Beal have asked the Federal Energy Regulatory Commission to approve the sale of the Harquahala facility by July 26. (FERC docket EC18-99) (Bankruptcy cases 18-11369-MFW and 18-11368-MFW)
