Alto Maipo Delaware LLC – Owners of Chilean Hydroelectric Facility File Chapter 11 with Over $2bn of Debt; Cite Climate Change (Less Precipitation Equals Less Power) and Plunging Electricity Prices as Rendering Capital Structure Unsustainable

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November 17, 2021 – Alto Maipo Delaware LLC and Alto Maipo SpA (together “Alto Maipo” or the “Debtors,” with the Delaware LLC created just prior to filing) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-11507 (Judge TBA). The Debtors, owners of a not yet operational hydroelectric facility located 50km from Santiago, Chile, are represented by Sean T. Greecher of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include: (i) Cleary Gottlieb Steen & Hamilton LLP, as general bankruptcy counsel, (ii) as Alix Partners LLP as restructuring advisors (iii) Lazard Frères & Co. LLC and Lazard Chile S.p.A. as investment bankers, and (iv) Prime Clerk as claims agent. 

As noted in "Corporate Structure" below, the Debtors' are indirectly controlled by potential DIP lender AES Andes which is in turn 67% owned by Virginia-based AES Corporation (NYSE: AES). In a November 17th 8-K, AES Corporation stated that: "On November 17, 2021, AES Andes announced that its subsidiary Alto Maipo SpA ('Alto Maipo') has commenced a reorganization proceeding in accordance Chapter 11 of the U.S. Bankruptcy Code, through a voluntary petition that was filed today (the “Chapter 11 Proceeding”). The AES Corporation (the “Company”) is no longer considered to have control over Alto Maipo and, therefore, in accordance with ASC 810-10-15-10, will derecognize from its Consolidated Statement of Financial Position the assets and liabilities of Alto Maipo and recognize an after-tax loss of approximately $800 million – $1 billion, net of non-controlling interests, in the Consolidated Comprehensive Income Statements for the fourth quarter of 2021, associated with the loss of control attributable to the former controlling interest.

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn*. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Strabag Spa ($3.4mn trade debt), (ii) Voith Hydro S.A. ($1.5mn trade debt) and (iii) Seguros Generales Suramericana S.A. ($1.1mn insurance-related trade debt).

         * Includes, inter alia, $1.471bn of first lien debt and $960.0mn of subordinated debt. See "Prepetition Debt" below.

In a press release announcing the filing, the Debtors advised that: “Alto Maipo SpA has filed for Chapter 11, Title 11 of the United States Code through a Pre Arranged financial restructuring agreement [although see below as to some doubt as where any support agreement stands] reached with its creditors, with the aim of initiating a financial reorganization process.

This process is intended to create a sustainable long-term capital structure maximizing recovery for all of its creditors and ensuring the liquidity necessary to
meet the short-term obligations for the start-up of the project.

The reasons for this decision are linked to the circumstances previously communicated, when it was informed about the update of studies and market and
hydrology projections prepared by independent experts. These estimate a reduction of more than 50% in the price of energy in different scenarios, considering the incorporation of multiple renewable projects to the national electricity system and in a time frame that was not foreseen years ago. Likewise, there was a significant decrease in hydrology in the last 10 years, compared to the historical average, which could mean a reduction in the expected annual generation of the project.

Alto Maipo is currently 100% complete in the excavation of its tunnels and 99% complete overall. Its construction will be completed within the costs estimated in its
last restructuring and approximately one year ahead of the dates guaranteed in the current construction contracts.”

Board minutes from a meeting held in Santiago on November 16th at 5pm (filed with the lead Petition) cast some shade on the Debtors' press release contention that they have already reached an restructuring support agreement with creditors. Those minutes note: "As a result of the work of the Company and its advisors, significant progress has been made with the Lenders regarding the restructuring of the Company's financing through the submission of the Company to the Chapter 11 regime. While the Company and the Lenders remain in discussions and have made progress towards proposed terms for a restructuring of the Company’s obligations, the Company and the Lenders have not yet reached definitive terms on a restructuring support agreement."

DIP Financing

The Debtors are in advanced discussions with AES Andes (which indirectly owns 93% of the Debtors) as to the provision of $50.0mn of debtor-in-possession ("DIP") financing ($20.0mn with interim DIP order) to see the Debtors through their stay in Chapter 11. The financing comes with interest of 4% (payable in kind) and fees (also payable in kind) including (a) an Upfront Fee of 1.0% of (i) the portion of the DIP Commitments available upon entry of the Interim Order and (ii) the remaining portion of the DIP Commitments, and (b) an Unused Commitment Fee of 0.75% per annum on the undrawn portion of the DIP Commitments. 

Prepetition Debt

Prepetition Secured Debt 

  • First Lien Indebtedness. Alto Maipo is the borrower under a series of prepetition term loans (the “Term Loans” and the lenders thereunder, the “Term Lenders”), all of which are secured by substantially all assets of the Company (the “Prepetition Collateral”) and rank pari passu as between each other. Itaú Corpbanca S.A. serves as administrative agent for the Term Loans. The Term Lenders include certain international development banks, local and international commercial banks, and syndicated lenders, including (i) the U.S. International Development Finance Corporation, (ii) the Inter-American Development Bank, (iii) Banco de Crédito e Inversiones, (iv) Banco Itaú, (v) DNB ASA, (vi) Deutsche Bank AG, (vii) UBS Group AG, (viii) Moneda Asset Management, (ix) Finepoint Capital, (x) Santana Capital Group, (xi) Clover Capital, Ltd., and (xii) Regera Sàrl. The Term Lenders collectively hold $1.471 billion in outstanding senior secured term loan debt.
  • Strabag Construction Agreement. Alto Maipo is party to a construction agreement with Strabag (the “Strabag Construction Agreement”), under which: Strabag holds a secured claim of up to $392 million against the Debtors, payableupon the fulfilment of certain contractual conditions.To date, Strabag has asserted secured claims of no less than $131 million against the Debtors (the majority of which is payable in shares of Alto Maipo), and the Debtors hold claims of up to approximately $36 million against Strabag.
  • Interest Rate Swaps. Certain of the Term Loans are also subject to interest rate swaps (the “Swaps” and together with the Term Loans, the “Prepetition Secured Debt”) held by the originating banks as well as KfW IPEX-Bank GmbH (the “Swap Counterparties” and together with the Term Lenders, the “Prepetition Secured Parties”). The total mark-to-market value of the Swaps, in the event of their termination, is approximately $164 million (as of October 25, 2021). The Swaps are also secured by the Prepetition Collateral and rank pari passu with the Term Loans.

The Debtors’ Prepetition Unsecured Debt

  • Voith. Alto Maipo is party to an agreement with Voith Hydro Ltda. and Voith Hydro S.A. (together, “Voith”), under which Voith has to date asserted contingent unsecured claims of no less than $20 million against the Debtors, and the Debtors hold contingent claims of approximately $29 million against Voith.
  • CNM. Alto Maipo was party to an agreement with CNM under which CNM had asserted contingent unsecured claims of up to $166 million (exclusive of legal fees and expenses) against Alto Maipo. Alto Maipo, in turn, held contingent claims of up to $236 million against CNM. The CNM claims were in arbitration proceedings in Chile until October 2021. On November 5, 2021, the Company received the decision of the arbitral panel, which awarded net damages of $106,889,431.86 to the Company.
  • Subordinated Debt. The Debtors are party to certain unsecured and subordinated debt instruments which are held by AES Andes and Strabag (total amounts owed thereunder, the “Subordinated Debt”), and which is pledged as security for the Prepetition Secured Debt. The Subordinated Debt  is subordinated and junior in right of payment to the repayment in full of the Prepetition Secured Debt and other amounts payable under the Project’s financing documents. As of the Petition Date, the total principal amount of Subordinated Debt currently outstanding as of COD is $960 million, of which AES Andes currently holds $867 million and Strabag holds $94 million.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filings (the “Dib Declaration”), Javier Dib, the Debtors’ Board President and Chief Restructuring Officer, detailed the events leading to Alto Maipo's Chapter 11 filing which in short comes down to (i) a 50% drop in electricity prices, (ii) a climate change-induced 50%* drop in the power generating capacity of the Debtor's hydroelectric facility (see more below on less snowfall and reduced water flows) and (iii) project costs that have run 70% over budget.

          * 1,100 GWh of energy projected for 2021 vs an average of 2,218 GWh over the previous 59 years.

The Dib Declaration provides: “Unfortunately, the energy market that Alto Maipo will enter into next year is not the same energy market that Alto Maipo projected would exist upon its initial Commercial Operation Date (the ‘COD’) when construction began in 2013. Since that time, there have been significant shifts both on the supply and demand side that have rendered Alto Maipo’s existing capital structure unsustainable. On the demand side, increased generation capacity has driven down electricity prices in Chile, such that spot prices at which Alto Maipo could sell power are now less than half of what they were in 2013. On the supply side, climate change has significantly impacted the hydrology of the Maipo Valley, where the Project is being constructed, and lower precipitation levels reduce in turn the amount of power that the Project can produce. As a result, Alto Maipo can no longer rely on its prior revenue projections, which assumed economic and environmental factors that are no longer in place.

Additionally, the cost of construction for the Project has increased by approximately 70% from Alto Maipo’s initial projections, due to unexpectedly difficult geological conditions as well as delays caused by certain of Alto Maipo’s contractors. These increased construction costs necessitated two prior restructurings that significantly increased the amount of debt owed by Alto Maipo to its creditors. These prior restructurings, however, were based on revenue projections that did not take into account the worsening hydrology and market conditions that have become apparent in the years since. As a result, the capital structure created through these prior restructurings is no longer sustainable.”

Drilling down on the impact of climate change, the Dib Declaration provides: "Even more problematic for the Project’s estimated revenue, however, is the significant impact that climate change has had on the energy supply available to the Project. The tributary rivers whose flow will power the Hydroelectric Plants begin at the peaks of the Andes Mountains, and are primarily fed by seasonal snowmelt from the glaciers on these peaks.

Unfortunately, in recent years, climate change has had a devastating impact on precipitation in the Andes Mountains, with the result that the rivers that will supply the Project have experienced a steep decline in overall water flow.

In order to assess the impact that climate change and the attendant decrease in precipitation will have on the Project, Alto Maipo commissioned a report by Systep to evaluate the long-term projections for expected generation and energy market prices (the “Market Report”).

The Market Report compared expected generation through the Project’s source rivers across two time periods: across the past 59 years, and across the past 10 years. Across the past 59 years, the Project would have generated an average of 2,218 GWh of energy per year. In contrast, across the past 10 years, precipitation and water flow through those same rivers would have generated an average of only 1,711 GWh of energy per year. The Market Report identified even further decreases in water flow in recent years, resulting in approximately 1,390 GWh of energy in 2019; 1,303 GWh of energy in 2020; and 1,100 GWh of energy projected for 2021, based on annualized figures.

About the Debtors

According to the Debtors: “Alto Maipo is a special purpose company, incorporated under Chilean law for the purpose of developing, constructing, and operating a run-of-river hydroelectric energy project in the Santiago Metropolitan Region of Chile, approximately 30 miles southeast of the city of Santiago. The hydroelectric energy project that is presently under construction (the 'Project') will consist of two run-of-river hydroelectric plants (the 'Hydroelectric Plants') which, once completed, will provide significant zero-emissions energy to Chile’s electric grid…Construction of the Project is currently expected to reach commercial operation in the first half of 2022, after which Alto Maipo will provide clean, renewable energy to power Chile’s economy."

Corporate Structure (sourced from lead Petition and Declaration)

  • Alto Maipo SpA is 93% owned by Norgener SpA and 7% owned by Strabag SpA.  
  • Norgener SpA is 100% owned by AES Andes S.A. which is 66.7% owned by the AES Corporation.
  • Strabag SpA is 100% owned by Strabag SE.
  • Alto Maipo Delaware LLC is 100% owned by Alto Maipo SpA 

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