Brazos Electric Power Cooperative, Inc. – Court Grants Extension of Exclusive Plan Filing Period until October 27, 2021, as Battle Over Treatment of $1.9bn ERCOT Claim Looms

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July 29, 2021 – The Court hearing the Brazos Electric Power Cooperative case extended the periods during which the Debtor has an exclusive right to file a Plan and solicit acceptances thereof, through and including October 27, 2021 and December 28, 2021, respectively [Docket No. 961]. Absent the relief, the initial Plan filing and solicitation periods were scheduled to expire on June 29, 2021 and August 30, 2021, respectively. 

In approving the requested extensions, the Court rejected an objection from the Debtor's Official Committee of Unsecured Creditors (the “Committee”) in which the Committee urged the Court to condition the requested 120-day extensions on the Debtor's willingness to securitize almost $1.9bn of costs associated with Winter Storm Uri, including claims by ERCOT and to do so now while "capital markets are open and interest rates are at near historic lows." Securitization of costs, central to legislation adopted on June 18, 2021, is something that the Debtor has said it needs more time to consider while otherwise pointing our that legislative intervention has not necessarily been welcomed ("these laws appear to only compound the complexities of the Debtor’s case"). Clearly, however, the Debtor would prefer to have a sizeable part of the $1.9bn disappear altogether rather than have it securitized, with that elimination of debt occurring either by Court order or by dint of its classification as a general unsecured claim.

Next up for the Debtor is an August 4th hearing at which the Debtor will ask the Court to consider its objection to ERCOT's "arbitrary and unconscionable" claim and to "disallow, in part, and materially reduce the ERCOT Claim in an amount as determined by this Court. The Debtor additionally requests that the ERCOT Claim be reclassified as a general unsecured claim in its entirety."

In its June 28th requesting motion [Docket No. 816], the Debtor cites numerous justifications for the proposed lengthy extensions beginning with a fairly straightforward arguments as to case complexity based on size ($2.0bn of debt and 1.5mn customers across 68 counties), before positing some unusual arguments asserting that (i) legislative intervention as to the impact of winter storm Uri actually makes things more complicated ("these laws appear to only compound the complexities of the Debtor’s case"), (ii) it will need time to review "various options concerning securitization financings" envisaged by that emergency Texas legislation and (iii) the extra burden posed by "an array of sophisticated, well-represented stakeholders that have taken an active role in this chapter 11 case."

The Debtor also notes that its "claims-review and reconciliation processes have only just begun," and that filing a Plan and Disclosure Statement will have to wait until at least after the Tort Claims Bar Date (i.e., August 5, 2021) and Governmental Bar Date (i.e., September 3, 2021) occur.  

The extension motion explains, “This chapter 11 case is large, complex and unique in many respects. Assets and liabilities exceed $2 billion; the Debtor’s Co-Op Members’ (as defined below) service territory extends across 68 counties from the Texas Panhandle to Houston, ultimately impacting over 1.5 million Texans—many of whom live in rural communities. The Debtor’s chapter 11 case came about unexpectedly resulting from catastrophic failures that accompanied the Black Swan Winter Event that blanketed the State of Texas beginning on or about February 13, 2021 and which maintained its grip of historically sub-freezing temperatures for days. 

The bankruptcy case was filed while the Texas Legislature was in session and, as a result, lawmakers sought to enact emergency legislation that would attempt to address the fallout from the Black Swan Winter Event…The scale and complexity of the Debtor’s operations mean that the Debtor must address numerous challenges during this chapter 11 process. As the undisputed evidence shows, the Debtor is Texas’s largest and oldest generation and transmission electric cooperative with more than 2,682 miles of transmission line and 385 substations/delivery points, making it Texas’s seventh largest transmission provider. 

The Legislature ultimately passed several bills related to the Black Swan Winter Event Winter, including House Bill 4492 ('H.B. 4492'), which seeks to defray certain costs incurred by ERCOT power region market participants, and Senate Bill 1580 ('S.B. 1580'), which enables electric cooperatives to use securitization financing to recover certain extraordinary costs and expenses. Texas Governor Greg Abbott signed H.B. 4492 and S.B. 1580 into law on June 16 and June 18, respectively. Although the Debtor’s and its advisors’ analysis is ongoing, these laws appear to only compound the complexities of the Debtor’s case, raising potential hurdles to the Debtor’s ability to continue as a market participant in the ERCOT power region and complicating the Debtor’s restructuring strategy and ongoing plan negotiations. In addition, the legal, economic, and practical realities of formulating a chapter 11 plan for a member-owned non-profit electric cooperative are unique and more complicated than those facing a typical for-profit debtor where equity is often out of the money and have little interest left to preserve.

Additionally, the Debtor has an array of sophisticated, well-represented stakeholders that have taken an active role in this chapter 11 case. Administering this case requires strenuous dedication and input from Debtor’s management team and advisors on a wide range of complicated matters, all of which are essential to bring structure and consensus to a large and complex process. Notwithstanding these challenges, the Debtor has made substantial progress toward formulating and proposing a chapter 11 plan that the Debtor believes would maximize value for its stakeholders and ensure that the Debtor can continue to carry out its mission to provide its Co-Op Members with affordable and reliable power…

Having made substantial progress to date, additional significant work is required before the Debtor can prepare a meaningful disclosure statement, propose a chapter 11 plan of reorganization and emerge from chapter 11. Importantly, the Debtor’s claims-review and reconciliation processes have only just begun and cannot be completed until sometime after the Tort Claims Bar Date (i.e., August 5, 2021) and Governmental Bar Date (i.e., September 3, 2021) occur. In order for the Debtor to provide adequate information regarding expected distributions to creditors in the disclosure statement to be filed by the Debtor, the Debtor submits that it is necessary to extend the Exclusivity Periods until after the passage of the those Bar Dates to provide the Debtor sufficient time to review and analyze the claims that are filed to determine the proper amounts of such claims. In addition, the Debtor is analyzing a number of potential restructuring strategies and transactions, including any litigation that may need to be commenced or resolved in connection with a chapter 11 plan, potential challenges related to H.B. 4492 and S.B. 1580, and various options concerning securitization financings for the Black Swan Winter Event and related costs. The Debtor also seeks to maintain exclusivity in order to avoid unnecessary and unproductive disputes which would hinder Debtor’s efforts to propose a consensual, value maximizing restructuring. Extending the Exclusivity Periods will permit the Debtor to continue prosecuting its value-maximizing restructuring process. An extension of the Exclusivity Periods will benefit all creditors by preventing a drain on estate assets that inevitably occurs when multiple parties, with potentially diverging interests, vie for the consideration of their own chapter 11 plans. All stakeholders benefit from the continued stability and predictability that a centralized plan process provides, which can only occur while the Debtor remains the sole potential plan proponent. In furtherance of that centralized plan process, the Debtor has been in extensive communication with all parties in interest and will continue such discussions as it seeks to build consensus around the restructuring transaction. Moreover, even if the Court approves one or more extensions of the Exclusivity Periods, nothing prevents a party in interest, acting in good faith, from later arguing that cause supports termination of the Exclusivity Periods. Accordingly, an extension of the Exclusivity Periods is in the best interests of the Debtor’s estate, its creditors, and all other parties in interest.”

 

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