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FirstEnergy Solutions seeks bankruptcy court approval for $25M letter of credit

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FirstEnergy Solutions seeks bankruptcy court approval for $25M letter of credit

FirstEnergy Solutions Corp. is seeking bankruptcy court approval for a $25 million letter of credit facility that the power provider contends is necessary to support continued operations and advance its separation from parent FirstEnergy Corp.

FirstEnergy Solutions, or FES, on Oct. 16 filed a motion in the U.S. Bankruptcy Court for the Northern District of Ohio for authorization to enter into a secured letter of credit facility agreement with Citizens Bank NA. The agreement also involves FirstEnergy Nuclear Operating Co., or FENOC.

"Since February 2018, the debtors have approached seven financial institutions with the intent of seeking such a facility. Ultimately, Citizens Bank agreed to provide a letter of credit facility that FES and FENOC could use for the issuance of letters of credit in an amount up to $25 million in the aggregate on terms acceptable to the debtors and Citizens Bank," FES wrote in the motion. "Other than Citizens Bank, no other financial institution was willing to provide a cash collateralized letter of credit facility for the debtors."

FES, FENOC and Citizens Bank finalized the terms of the agreement over two months of negotiations.

"Entry into and implementation of the agreement would allow the debtors to respond to the sudden uptick in adequate assurance demands relating to important agreements that are critical to their business plan without undue credit risk exposure," FES wrote. "The agreement would also help the debtors evaluate new agreements and arrangements that are needed to successfully separate from non-debtor FirstEnergy Corp. without being limited to only certain vendors who do not require letters of credit or large cash deposits."

As part of the separation plan, the federal bankruptcy court on Sept. 26 approved a definitive settlement agreement between FirstEnergy, FES and its subsidiaries, and FENOC.

FES, its subsidiaries and FENOC on March 31 filed for Chapter 11 bankruptcy protection. The bankruptcy filing came just a few months after a $2.5 billion equity infusion into parent FirstEnergy to support the company's strategic transition and its target of 6% to 8% regulated operating earnings growth rate through 2021.