Edison Mission Energy, the unregulated power generation business of Edison International (EIX.N), has filed for Chapter 11 bankruptcy protection after being hurt by heavy debts, weak power prices and high fuel costs.
Under a restructuring plan which needs court approval, Edison International will transfer its 100 percent equity interest in Edison Mission to unsecured creditors including noteholders, who together hold about $3.7 billion of the company's outstanding public debt.
A large portion of the debt is held by a group of hedge funds including York Capital Management, which invests in distressed debt.
The restructuring aims to substantially reduce the company's existing public debt. Edison Mission's operations are expected to continue as normal in the meantime.
"We are pleased to have reached this agreement, which we believe reflects the long-term value potential of our organization," Pedro Pizarro, president of Edison Mission, said in a statement.
Pizarro said Edison Mission plans to emerge from the restructuring as a recapitalized company separate from its parent. The separation from Edison International is anticipated to occur by December 2014.
Edison Mission, based in Santa Ana, California, owns and operates coal, natural gas and renewable power plants producing more than 10,000 megawatts in states including California, Illinois, Pennsylvania and West Virginia.
The company suffered as the 2008 recession cut power demand, while wholesale power prices have also fallen with cheaper natural gas, making it harder for Edison's coal-fired plants to remain competitive.
Edison Mission also faces the expiration on Monday of a 30-day grace period for a $97 million interest payment that was due last month on unsecured bonds. In mid-November, the company said it would likely file for Chapter 11 protection if it could not make the payment.
Edison Mission affiliates that filed for Chapter 11 protection include Midwest Generation, which manages the company's fleet of coal-fired plants in Illinois. However, the company's wind energy projects were not included in the bankruptcy filings.
The case is Edison Mission Energy, Case No. 12-49219, U.S. Bankruptcy Court, Northern District of Illinois.