UPDATE 3-Edison Mission Energy files for bankruptcy

Mon Dec 17, 2012 3:27pm EST

By Nick Brown

Dec 17 (Reuters) - Edison Mission Energy, the unregulated power generation business of Edison International, filed for Chapter 11 bankruptcy protection on Monday with a proposal to transfer control of the company to holders of $3.7 billion in unsecured bonds.

In court papers filed in U.S. Bankruptcy Court in Chicago, Edison Mission said a "perfect storm" of heavy debts, weak power prices and high fuel costs have threatened its ability to stay competitive.

Reuters had reported on Saturday that Edison Mission was preparing a bankruptcy filing to avoid defaulting on a bond interest payment.

Based in Santa Ana, California, Edison Mission owns and operates coal, natural gas and renewable power plants totaling more than 10,000 megawatts in states including California, Illinois, Pennsylvania and West Virginia.

Like many coal plant operators, it has suffered as the 2007-2009 recession cut power demand and wholesale power prices fell because of the supply of cheaper natural gas.

Under a proposal outlined in the bankruptcy filing, Edison International would transfer its 100 percent equity stake in Edison Mission to bondholders, which include York Capital Management and other distressed debt investors.

The company is projecting the transfer to occur in late 2014, which could allow Edison Mission to continue benefiting from projected tax-sharing payments from its parent through the end of that year.

Federal tax laws allow companies to offset taxable income by making payments to unprofitable units, but only as long as they retain at least 80 percent of the equity in the units.

The proposal, which would need bankruptcy court approval, is not final, Edison Mission said in Monday's filing.

"To be clear, the debtors are not at this time seeking authority to assume" the agreement, Edison Mission said. But, it added, the agreement would "position the debtors, should they choose to move forward with the turnover proposal, to propose and obtain court approval of a consensual, value-maximizing" deal.

In all, Edison Mission subsidiaries hold about $1.2 billion in debt on top of the company's $3.7 billion in bond debt.

Other issues in the reorganization include the possible refinancing of $345 million owed on leveraged leases at two coal plants leased by the company's Midwest Generation unit.

Edison International Chief Executive Ted Craver has told investors that the Midwest Generation leases may need to be refinanced.

The bondholders who financed those leases have hired restructuring lawyers from Cadwalader Wickersham & Taft. The case is Edison Mission Energy, Case No. 12-49219, U.S. Bankruptcy Court, Northern District of Illinois.

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