Tue 05/10/2022 21:27 PM
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Judge Marvin Isgur granted substantially all of the Talen Energy debtors’ requested first day relief at today’s first day hearing, including interim approval of DIP financing and the debtors’ postpetition hedging program. The debtors obtained interim access to $800 million of their $1 billion DIP term loan and to $75 million of their $300 million DIP revolver. The court questioned the rollup function of the debtors’ separate proposed $457.9 million DIP letter of credit facility, granting interim relief only after a representation from counsel to agent Citibank, Damian Schaible of Davis Polk, that the DIP L/C claims would “roll down” again if paid down during the interim period.

The court also scheduled a second day hearing for June 8 at 4:30 p.m. ET, with an objection deadline of June 3 at 6 p.m. ET.

Reorg provided live updates from the first day hearing, which can be accessed HERE.

Although there were no formal objections, counsel to three ad hoc groups (each including secured creditors) raised preliminary concerns with the debtors’ plan construct embedded in the restructuring support agreement with the ad hoc unsecured bondholder group represented by Kirkland & Ellis. The secured groups also raised several intercreditor disputes, including namely a comment from Alice Eaton of Paul, Weiss, counsel to an ad hoc crossholder group, that there is a “potential” dispute over whether the commodity accordion facility is eligible to be treated as a first lien facility and whether it may be subject to challenge or dispute (emphasis added). Eaton said her group hopes this matter will be resolved consensually, but “it’s a material issue.”

Echoing a reservation of rights filed shortly before the hearing, Matt Warren of King & Spalding, counsel to one of two first lien creditor groups, expressed caution regarding assumptions built into the RSA construct and said the group is “a little skeptical” about aggressive hedging, capex and operational cash flow assumptions. Scott Alberino of Akin Gump, counsel to the other first lien group, joined Warren’s comments and said his group is “cautiously optimistic” about being paid in full under the unsecured group’s deal but won’t be left “watching value walk out the door” if the debtors’ proposed course of action does not pan out over the following months.

Alberino noted that if the secured creditors cannot reach agreement with the debtors on payment of current interest ahead of the final DIP hearing, they will file an objection to the DIP motion’s lack of appropriate adequate protection. Alberino, joined by Eaton on this issue, observed that it is incongruous that secured creditors are not receiving current interest in a situation where the company is prepared to “hand the keys” to unsecured creditors. “We think the company can afford it,” Alberino added, pointing out that the debtors’ DIP budget shows unrestricted cash of about $780 million by the end of August. John Ashmead of Seward & Kissel, for Wilmington Trust, administrative agent for the 2019 term loan B, made a brief appearance to note that the agent will also continue to look at this issue.

Gabe Morgan of Weil Gotshal, for the debtors, suggested that the vocal secured creditor groups may be constrained by the prepetition intercreditor agreement from even making an adequate protection objection. Morgan also told the court that the debtors believe the priming liens called for in the DIP financing “are consensual,” though not all secured parties may agree with that position.

At the outset of the hearing, Matthew Barr of Weil Gotshal, counsel to the debtors, advised the court that the debtors received informal objections to the requested first day relief, but were able to resolve all of them prior to the hearing.

Barr’s introduction was followed by Talen president and CEO Alex Hernandez, who provided an overview of the company’s business, emphasizing that the company - since it went private in 2016 - implemented a turnaround that increased its competitiveness particularly in a “weak power environment.” Hernandez also highlighted the company’s future in terms of growth initiatives, specifically in the converging worlds of technology, infrastructure and carbon-free power, pointing to various projects as examples.

Steven Serajeddini of Kirkland & Ellis, on behalf of the ad hoc unsecured group that supports the RSA, described the debtors’ restructuring plans as seeking to accomplish an “astronomical level of deleveraging,” noting that it is “no small feat” with a “check bigger than the bond tranche itself.” Although there could be issues regarding make-whole and what constitutes a claim, Sarajeddini said unsecured creditors formed the ad hoc group “a little over a month ago” and “mobilize[d] quickly” with respect to the RSA.

There was no discussion at today’s hearing of debtor Talen Montana’s fraudulent conveyance adversary complaint, filed with the first day pleadings. The complaint seeks to avoid $900 million of payments to former parent PPL.
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