December 22, 2020 – The Debtors notified the Court that their First Amended Plan had become effective as of December 22, 2020 [Docket No. 360]. The Court had previously confirmed the Debtors’ Plan on December 18, 2020 [Docket No. 354].

On June 18, 2020, NorthEast Gas Generation, LLC and three affiliated Debtors (“NEG” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11597. At filing, the Debtors, who own and manage two natural gas-fired electric generating facilities, noted estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $500.0mn and $1.0bn. In a subsequently filed Schedule A/B, the lead Debtor noted $10.2mn of assets and $747.5mn of liabilities [Docket No. 100]

The Debtors were represented by (i) Richards, Layton & Finger, P.A. as local bankruptcy counsel, (ii) Alvarez & Marsal North America, LLC as financial advisors, (iii) Houlihan Lokey as investment banker and (iv) Prime Clerk LLC as claims agent.

Deadlines for professional fee claims and administrative claims have been set at January 15, 2021 and January 21, 2021, respectively.

Prior Chapter 11 Cases

This is the Debtors’ third Chapter 11 filing in six years. In April 2014, the (same) Court confirmed the prior Debtors’ prepackaged chapter 11 plan, reducing funded indebtedness by approximately $600.0mn while paying unsecured creditors in full and issuing 93.5% of new equity in reorganized NEG to former holders of second lien debt and 6.5% of new equity in reorganized NEG to the then-existing equity holders. 

In July 2018, the (same) Court confirmed another prepackaged chapter 11 plan, this time reducing funded indebtedness by approximately $70.0mn while paying unsecured creditors in full and transferring 100% of the equity in New Harquahala Generating Company, LLC to former holders of the prior Debtors’ first lien debt.  As part of the 2018 cases, the first lien holders also ended up with a deficiency claim, which is the $553.6mn of unsecured debt noted above.

Plan Overview

The Disclosure Statement [Docket No. 238] notes, “The Plan provides for, among other things, the restructuring of each of the Debtors, including 

1. NorthEast Gen, the direct or indirect parent company of the Project Debtors (as defined herein), 
2. New Athens, the current owner of a 1,080 MW facility located in Athens, New York, that achieved commercial operation on May 5, 2004 (the ‘Athens Facility’), 
3. Millennium (together with New Athens, the ‘Project Debtors’), the current owner of a 360MW facility, located in Charlton, Massachusetts, that achieved commercial operation on April 12, 2001 (the ‘Millennium Facility’, and together with the Athens Facility, the ‘Facilities’), and 
4. NorthEast Gen GP, a wholly owned subsidiary of NorthEast Gen which holds 99.5% of the equity interests in Millennium. 

The restructuring will result in 

1. 100% of the existing equity interests in NorthEast Gen being cancelled; 
2. 100% of the equity interests in Reorganized NorthEast Gen (the Distributable Equity) being distributed to the holders of Allowed DIP Claims and Class 3 First Lien Claims, with each holder (or its designee) receiving their Pro Rata Share, relative to the aggregate of all DIP Claims and First Lien Claims (or such other allocation as may be determined by the First Lien Lenders and the DIP Lenders in their sole discretion); 
3. 100% of the equity interests in each of the other Debtors being reinstated solely to preserve the Debtors’ corporate structure; and 
4. the vesting of the assets of the Estates of each of the Debtors in the respective Reorganized Debtors free and clear of all claims and interests of creditors, equity security holders, and general partners in the Debtors. 

In connection with the treatment of Allowed Class 3 First Lien Claims, the Plan also provides for the reinstatement of the First Lien Claims in the principal amount equal to $200 million which shall be reinstated in accordance with the Plan and subject to the Reinstated First Lien Debt Modification Terms. 

In total, the restructuring will eliminate no less than $385.2 million in funded indebtedness, with the Reorganized Debtors thereby emerging with a stronger capital structure that is better aligned with the Reorganized Debtors’ present and future operating prospects. 

On the Effective Date of the Plan, the Reorganized Debtors shall establish and fund an interest-bearing account (the ‘GUC Recovery Account’) in the amount of $2 million (the ‘GUC Funding Amount’), which shall be used by the Disbursing Agent solely to fund distributions to the holders of Allowed General Unsecured Claims. As soon as practicable after (a) resolution of all Disputed General Unsecured Claims and (b) either determination by the Debtors or Reorganized Debtors, as applicable, that no further objections to General Unsecured Claims will be forthcoming or the passage of the Claims Objection Deadline, the funds in the GUC Recovery Account, including the interest that has accrued on the GUC Funding Amount while on deposit therein (collectively with the GUC Funding Amount, the ‘Distributable Proceeds’) shall be allocated and paid to the applicable holders of Allowed General Unsecured Claims entitled to Cash distributions on a Pro Rata basis and subject to any applicable cap until such holders are paid in full (subject to any applicable cap) or the Distributable Proceeds are exhausted (the ‘GUC Recovery’). Any funds remaining in the GUC Recovery Account thereafter shall be transferred to an account designated by the Reorganized Debtors, and the GUC Recovery Account shall be closed, all without any further action or order of the Court. All other distributions contemplated by the Plan (including the funding of the Professional Fees Escrow Account) shall be made by the Debtors or the Reorganized Debtors, as applicable, in accordance with the terms of the Plan.”

The following is summary of classes, claims, voting rights and expected recoveries (Defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Priority Non-Tax Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0.00 and the estimated recovery is N/A.
• Class 2 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0.00 and expected recovery is N/A.
• Class 3 (“First Lien Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is At least $539.9mn and expected recovery is 59.2%. Each holder of an Allowed Class 3 Claim (x) its Pro Rata Share, relative to the aggregate of all DIP Claims and First Lien Claims (or such other allocation as may be determined by the First Lien Lenders and the DIP Lenders in their sole discretion), of the Distributable Equity and (y) its Pro Rata Share, relative to the aggregate of all First Lien Claims (or such other allocation as may be determined by the First Lien Lenders in their sole discretion) of 100% of the Reinstated First Lien Debt. Notwithstanding anything to the contrary in the Plan and for the avoidance of doubt, the treatment of the First Lien Claims pursuant to the Plan does not (and shall not be deemed to) constitute a Discharge of First Lien Obligations under (and as defined in) the Intercreditor Agreement.
• Class 4 (“Second Lien Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is At least $29.9mn and expected recovery is N/A. For the benefit of the Estates and the holders of Claims against the Debtors, and in full and final satisfaction, settlement, release and discharge of each Second Lien Claim, the holders of Second Lien Claims have agreed to waive and release any recovery that they may otherwise be entitled to on account of any and all Second Lien Claims, and all Second Lien Claims shall be deemed discharged and, except as otherwise expressly provided herein, the instruments evidencing or securing such Claims shall be cancelled with no distribution on account of such Claims, subject only to the terms of the Limited LC Rights Agreement.
• Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is At least $16.95mn to $58.7mn and expected recovery is 3% to 12%. Each holder of an Allowed Class 5 Claim shall receive, in full and final satisfaction, settlement, release, and discharge of, and in exchange for, each such General Unsecured Claim, its Pro Rata Share (subject to any applicable cap) of the Distributable Proceeds pursuant to the GUC Recovery (capped at $2.0mn); provided, that the Talen Entities, in each case in their respective capacities as holders of General Unsecured Claims, have agreed, for the benefit of the Estates and holders of Claims, to waive and release any recovery that they may otherwise be entitled to on account of any and all of their General Unsecured Claims, and in any event each Other Talen Claim shall not be Allowed and shall be deemed to be automatically cancelled, released, discharged and extinguished with no distribution on account of such Claims.
• Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.
• Class 7 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
• Class 8 (“Interests in NorthEast Gen”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.

Plan Voting Results

On December 3, 2020, the Debtors’ claims agent notified the Court of Amended Plan voting results [Docket No. 326], which reflect a ballot received from a creditor in the Second Lien Claims class and were as follows:

• Class 3 (“First Lien Claims”) 1 claim holder, representing $554,541,491.60 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 4 (“Second Lien Claims”) 1 claim holder, representing $53,589,964.46 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 5A (“General Unsecured Claims against NorthEast Gas Generation, LLC”) 1 claim holder, representing $20,674.90 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 5B (“General Unsecured Claims against NorthEast Gas Generation GP, LLC”) No Ballots Returned in This Class
• Class 5C (“General Unsecured Claims against Millennium Power Partners, L.P.”) No Ballots Returned in This Class
• Class 5D (“General Unsecured Claims against New Athens Generating Company, LLC”) 1 claim holder, representing $636.50 in amount (or 100%) and 100% in number, voted in favor of the Plan.

Key Documents

The following documents were attached to the Disclosure Statement [Docket No. 238]:

• Exhibit A: Plan
• Exhibit B: Projections

The Debtors filed Plan Supplements at Docket Nos. 288, 306 and 324 which attached the documents:

• Exhibit A: The list of Preserved Causes of Action [Docket No. 288]
• Exhibit B: The list of assumed Executory Contracts and Unexpired Leases [Docket No. 288]
• Exhibit C: The list of rejected Executory Contracts and Unexpired Leases [Docket No. 288]
• Exhibit D: The list of the members of the New Boards [Docket No. 288]
• Exhibit E: The Reinstated First Lien Debt Modification Terms [Docket No. 306]
• Exhibit F: The New Organizational Documents [Docket No. 324]
• Exhibit G: The form of Limited LC Rights Agreement  [Docket No. 324]

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Lebsack Declaration”), Dale E. Lebsack, Jr., the Debtors’ President, detailed the events leading to Debtors' Chapter 11 filing. The Lebsack Declaration provides: “The Debtors emerged from the 2018 Chapter 11 Cases almost two years ago with a substantially deleveraged capital structure. Under normal operating conditions, the Debtors’ steady cash flows would enable them to reliably service their funded debt obligations and weather ordinary variations in customer demands, but recent extraordinary fluctuations in the energy market have presented the Debtors with new balance sheet challenges. 

Natural gas prices have remained historically low, continuing downward pressure on electric energy prices in the Debtors’ markets, which are heavily dependent on gas-fired generation. At the same time, supply is increasing relative to demand in the Debtors’ markets, further challenging energy prices and driving down capacity prices. This oversupply stems from (i) the ongoing deployment of energy saving and distributed generation technologies, which reduces demand for electricity, and (ii) the addition of new renewable energy capacity, driven by regulatory policy and lower equipment costs, and new gas-fired generation, spurred by cheap natural gas. With energy prices already facing these headwinds, winter 2019-2020 electricity demand was pushed even lower by record-high seasonal temperatures across the Debtors’ markets. A much warmer-than-normal winter reduced the need for home heating, a substantial source of consumer energy consumption. Looking forward, the problem of demand destruction  is now being abetted by the coronavirus pandemic and economic recession, which has resulted in significant reductions in electricity demand from industrial and commercial users throughout the region and country.”

Prepetition Indebtedness

In connection with their emergence from their 2018 Chapter 11 Cases, the Debtors entered into the First Lien Credit Agreement and Second Lien Credit Agreements. As of the Petition Date, the Debtors have approximately $585.2mn of aggregate funded indebtedness, comprised of approximately: 

(i) $554.7mn outstanding under the First Lien Facility plus issued and outstanding letters of credit pursuant to the First Lien Credit Agreement with an aggregate face amount of approximately $23.2mn; 

(ii) $30.5mn outstanding under the Second Lien Facility plus issued and outstanding letters of credit pursuant to the LC Support Agreement with an aggregate face amount of approximately $23.2 million; and

(iii) $13.3mn in unsecured debt as of the Petition Date, of which approximately $10.5mn relates to unpaid trade debt to third-party vendors, contractors, and suppliers.

About the Debtors

NEG owns and manages a portfolio of two natural gas-fired electric generating facilities located in the United States: (1) a 1,080 MW facility located in Athens, New York that achieved commercial operation on May 5, 2004 (the “Athens Facility”); and (2) a 360 MW facility, located in Charlton, Massachusetts, that achieved commercial operation on April 12, 2001 (the “Millennium Facility,” and together with the Athens Facility, the “Facilities”). 

NEG generates revenues through the sale of energy, capacity, and ancillary services from the Facilities through various arrangements, including into relevant power markets pursuant to energy management agreements (each, an “Energy Management Agreement”) with a reputable energy manager (the “Energy Manager”), currently its affiliate Talen Energy Marketing, LLC (“Talen Marketing”).

The Facilities dispatch electricity into two power markets, both of which are served by independent system operators (“ISOs”). Specifically, the Athens Facility dispatches power into the region managed by the New York ISO, and the Millennium Facility into the region managed by ISO New England. Both of the Facilities utilize advanced frame “501G” combustion turbine generating technology and equipment supplied by leading manufacturers. II.Corporate History and Organizational Structure 

The Debtors are part of a group of privately-owned independent power generation infrastructure companies indirectly owned by non-Debtors Talen Energy Corporation and Talen Energy Supply, LLC (“TES”). Non-Debtor NorthEast Gas Generation Holdings, LLC (f/k/a MACH Gen, LLC) (“Holdings”) is the direct parent company of NEG. NEG, in turn, is the direct or indirect parent company of the following project-owning Debtors: (i) New Athens Generating Company, LLC (“New Athens”), the current owner of the Athens Facility; and (ii) Millennium Power Partners, L.P. (“Millennium Power” and, together with New Athens, the “Project Debtors”), the current owner of the Millennium Facility. New Athens is wholly and directly owned by NEG. Millennium Power is also wholly owned by NEG, in part directly and in part indirectly, through NEG GP, LLC (a wholly and directly owned subsidiary of NEG) (“NEG GP”).

Corporate Structure Chart (See Docket No. 180)

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