US Bankruptcy Judge David Jones approved GenOn Energy’s disclosure statement this morning, after the debtor made a series of last-minute changes to resolve objections from land owners, litigants, and the City of Pittsburgh.
Today’s approval keeps the company on track for its proposed plan confirmation hearing on 13 November and potential emergence from bankruptcy before 13 December, but lawyers for GenOn and its creditors acknowledged today that “a lot remains to be done.”
GenOn, a wholesale power generator operating in the Pennsylvania Jersey Maryland Power Pool Market, filed for Chapter 11 protection this June after months of talks with bondholders. The company filed its latest amended plan on 18 September, including changes that allow it more flexibility in pursuing assets sales in a dual-track restructuring process. The plan aims to fully separate GenOn from its parent, NRG Energy.
“We’re in the midst of a sale process,” said GenOn counsel Steven Serajeddini, of Kirkland & Ellis. “There’s been a high level of activity and we’ve received outreach from a host of participants, including NDAs with a large number of parties. Round one bid deadline is Friday, so we’re hoping for a robust set of bids then.”
An ad hoc group of GenOn Energy noteholders, with debt holdings of about USD 1.47bn, have signed onto the company’s restructuring support agreement.
Davis Polk & Wardwell partner Damian Schaible, representing the group, said today that its ten members are “highly supportive” of the company’s dual-track M&A and standalone emergence path. He noted that his group will vote in favor of the plan, but the RSA contains a mechanism that renders those votes null and void if the RSA itself falls apart.
Judge Jones also approved today an exclusivity extension motion, a cash incentive plan for management, and retention agreements for GenOn investment bankers Credit Suisse and Rothschild, overruling objections from the US Trustee. The judge required GenOn to present the proffered testimony of several witnesses regarding the proposed fees in order to build out a full evidentiary record on the matter.
“There will be those who look at this plan in the future and they will question why management got a bonus when in their view they didn’t deliver, and I understand the fallacy in that argument, but I think the process must be transparent,” Judge Jones said. “In looking at it, just doing my own analysis, it just feels right. I think the incentives are where they should be. I don’t think it’s extravagant in any way shape or form, it’s a commercial realization of what has to get done. The record is there.”
Credit Suisse will market GenOn’s power plants as part of a standalone sale process that is running parallel to the plan process, while Rotshchild will negotiate exit funding for the plan. Rothschild will receive a USD 11m fee when the plan is confirmed, the US Trustee noted.
Jones said he would reserve his right to reexamine the overall fee structure “if things go sideways” in the case. The judge specified that he has no intention of “meddling” with fees for Rothschild or Credit Suisse, and that he would reconsider his ruling only if “there’s a complete mess.” But he took the opportunity to address a controversial ruling regarding fees that he made in a bankruptcy case last year.
“I think a number of you have seen my reaction when my trust is abused,” Judge Jones told his courtroom full of lawyers. He appeared to be referring to the Midstates Petroleum Chapter 11 proceedings in 2016, in which he slashed feeds for unsecured creditors counsel (UCC) Squire Patton Boggs, citing the firm’s conduct in the case.
“I’m not happy I had to do that,” Jones went on. “It’s a moment that I’ve gone over many times, I’ve been subjected to criticism by some, applause by others, none of which I want. But I have that stand as a record of what happens when parties abuse my trust.”