Wed Jul 27, 2022 8:19 pm

​​​​Over nine years, the Reorg team has analyzed thousands of performing and distressed credits. Our expert team of financial analysts, legal analysts and journalists produce granular capital structures, primary analysis, tear sheets, waterfall models and more.

With long and deep connections to credible sources, we publish up-to-the minute news to help you stay ahead. In this case study, we’re highlighting one example showcasing the ongoing credit insights that Reorg’s team provide day in, day out to enhance efficiency and improve decision making for more than 25,000 investors, advisors and lawyers.

Talen Energy Supply is a merchant power company with an 18-facility generation portfolio.

The company filed chapter 11 on May 9 in the Bankruptcy Court for the Southern District of Texas after a “sudden and sustained rise” in natural gas prices “sharply increased” the collateral requirements for Talen’s hedging activities, resulting in an “unexpected squeeze” on available cash for the company, leading the debtors to seek chapter 11 protection primarily in the face of “immediate and significant liquidity concerns.”

The company entered chapter 11 with a restructuring support agreement and restructuring term sheet supported by an ad hoc group of holders of the company’s unsecured notes. 

August 14, 2018 

Reorg initiated coverage on Talen Energy.

June 23, 2021

Reorg discussed Talen’s plans to raise $600 million to $800 million of equity capital for its transformation toward a “sustainable, ESG-focused future.” The capital raise comes on the back of year-over-year deterioration in first-quarter EBITDA followed by weaker-than-forecast results at the 2022/2023 PJM capacity auction.

July 20, 2021

Reorg analyzed Talen’s capacity to transfer assets from the company’s restricted subsidiaries to unrestricted subsidiaries and then issue new debt or obtain a loan secured by those assets, including the possibility of lenders seeking to avoid such transfers as fraudulent conveyances.

August 11, 2021

After Talen’s announcement that it entered into a JV with TeraWulf to develop up to 300 MW of zero-carbon bitcoin mining capacity, Reorg estimated the cash flow potential of the JV at various Bitcoin prices.

August 12, 2021

On its second-quarter earnings call, Talen management said it had received a variety of liability management proposals, which it, along with its board of directors, was evaluating. Subsequently, Reorg reported on Aug. 16 that creditors were organizing, amid concerns about the possibility of Talen transferring the Susquehanna nuclear facility in Pennsylvania, its power plant with the highest power generation capacity, out of the restricted group, to secure new financing for its crypto mining initiative. On Aug. 19 Reorg reported that an ad hoc group of secured and unsecured noteholders of Talen Energy was working with Paul Weiss as counsel and Perella Weinberg Partners as financial advisor. An ad hoc group of Talen Energy term loan lenders selected Houlihan Lokey as financial advisor and King & Spalding as counsel. On Sept. 7, Reorg reported that Talen Energy was working with Weil Gotshal as legal advisor and Evercore as financial advisor.

September 24, 2021

Reorg further considered the impact that unrestricted subsidiary transfers could have on Talen’s creditors’ claims to those assets should the company file for chapter 11, and provided a summary of similar transactions and related litigation.

October 12, 2021

Reorg provided an updated organizational structure for Talen Energy after incremental disclosure regarding the company’s activities in recent months as the company continued to raise capital related to its Cumulus ESG initiatives.

November 23, 2021

Reorg reported that some large Talen Energy Supply bondholders became restricted as the company prepared to raise capital in the form of a second lien loan or bridge facility as it faced additional collateral calls on its hedge book and nearly $147 million of coupon payments and maturities in December. On Dec. 1, Reorg analyzed the P&L impact of Talen’s hedge book losses and detailed its collateral postings to date.

December 2, 2021

Talen disclosed entry into a $788 million first lien facility, led by GoldenTree Asset Management. The company sought to use proceeds from the facility to fund elevated collateral requirements. Reorg provided an updated capital structure and an Excel download of the company’s quarterly projections for the fourth quarter and 2022. On Dec. 16, Talen disclosed entry into an upsized $848 million first lien facility and provided updated projections.

March 30, 2022

Reorg assessed the impact of a chapter 11 filing on collateral posted by the company to its hedge counterparties, concluding that if Talen were to file for bankruptcy, hedge counterparties could sweep collateral posted by the company because the “automatic stay” barring creditor collection activity triggered upon a bankruptcy filing is subject to “safe harbor” exceptions for counterparties to a wide range of derivatives contracts. Those exceptions to the automatic stay allow hedge counterparties to a debtor to terminate any outstanding derivative contracts postpetition, crystallizing any mark-to-market losses.

April 1, 2022

Reorg reported that a new ad hoc group of holders of Talen Energy Supply’s unsecured bonds was being advised by Kirkland & Ellis as counsel and Rothschild as financial advisor. Also on April 1, Reorg published a tear sheet and financial analysis of the company, segregating Talen’s operating asset results from its hedge portfolio results and further discussing hedge losses and projections.

April 27, 2022

Reorg publishes a waterfall analysis for Talen, estimating that Talen’s unsecured claimants would recover 52.6% in a mid-case scenario, on the basis of distributable value of $5.54 billion. This valuation included $3.48 billion in value ascribed to Talen’s generating assets, $131 million in value ascribed to Talen Energy Supply’s stake in the Cumulus entities and $1.923 billion in estimated unrestricted cash as of year-end 2022. The analysis also examined the benefits to Talen’s 2022 cash flow from filing for chapter 11. Ultimately, Reorg concluded that Talen’s improved cash flow profile over the course of 2022 more than offset losses from its hedge book, resulting in a significant increase in balance sheet cash as of year-end 2022 that contributed meaningfully to creditor recoveries.

May 6, 2022

Reorg reported that Talen is preparing to file chapter 11 “as soon as next week” as liquidity runs low. On May 9, Reorg broke the news of Talen’s chapter 11 filing in the U.S. Bankruptcy Court for the Southern District of Texas.

May 10, 2022

Reorg provided a case summary detailing Talen’s first day pleadings, including a summary of the restructuring support agreement and contemplated new-money rights offering agreed with the ad hoc group of holders of Talen Energy Supply’s unsecured bonds advised by Kirkland and Rothschild. Reorg covered Talen’s first day hearing in front of Judge Marvin Isgur where the debtors received interim approval of DIP financing and the debtors’ postpetition hedging program.

May 19, 2022

Reorg estimated that recoveries for Talen Energy unsecured bondholders that participate in the $1.3 billion rights offering under the debtors’ restructuring support agreement would total 78.2%, on the basis of the debtors’ stated $4.5 billion total enterprise value. 

May 31, 2022

Reorg summarized debtor Talen Montana’s adversary complaint seeking to avoid the transfer of approximately $900 million of asset sale proceeds to former parent PPL Corp. as a fraudulent conveyance, noting that the adversary proceeding was the fourth lawsuit filed since 2018 related to the challenged transfer.

Reorg concludes that owing to repeated delays in the group’s cash conversion plan and in the Reorg has covered Talen Energy from numerous angles over the past four years, including detailed reporting and financial and legal analysis. Reorg’s analysis has enabled market participants to form a view as to the value of the securities in the company’s capital structure and has highlighted key considerations such as the substantial cash balance that the company is capable of generating while in chapter 11.

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