Relevant Document:
GenOn Plan Supplement

The GenOn Energy debtors filed a plan supplement today including new exit financing documents, a term sheet regarding the settlement between the debtors and NRG and a new consent agreement between GenOn Energy, GenOn Americas Generation and certain consenting noteholders. Although the milestone relating to the effective date of the plan has been extended to June 2018 (or September 2018 if regulatory approvals remain pending), confirmation remains scheduled to begin on Nov. 13, and the documents appear to contemplate entry of a confirmation order before the end of 2017.

The debtors explain that the settlement term sheet reflects the latest agreement in principle between the debtors and NRG but does not reflect the views of, or agreement by, the consenting noteholders. However, the settlement term sheet seems to solidify agreements between the debtors and NRG both with respect to claims between the parent and debtors and with respect to their ongoing cooperation.

NRG Settlement Term Sheet

According to the plan supplement, the settlement term sheet “reflects the latest agreement in principle between the Debtors and NRG and does not reflect the views of, or agreement by, the Consenting Noteholders.” The settlement term sheet does not mention a payment from NRG, but a separate settlement agreement included in the plan supplement and discussed below contemplates that NRG will make a settlement payment to the debtors of $261.3 million less $126.7 million plus any additional amounts due under the intercompany revolving credit facility.

Under the term sheet, GenOn and NRG would replace the shared services agreement with a new transition services agreement that has a fee of $7 million per month (the same rate as previously announced), plus reimbursement of all of NRG’s actual third-party expenses. GenOn would receive two free months of services after the plan effective date, provided that the two free months would not result in an extension of the shared services term. The duration will be through June 30, 2018, with one three-month extension at GenOn’s option to Sept. 30, 2018. GenOn would be entitled to earn from NRG a credit of $1 million per month if the agreement is terminated prior to Sept. 30, 2018, and the early transition credit would be applied against any of NRG’s allowed claims under the plan on the plan effective date.

The term sheet also contains a number of provisions as to operational cooperation and co-development matters. These cover Canal 3, Puente, Coolwater, Avon Lake Seward/Deer Park and the 1000 Main lease. With respect to Canal 3, GenOn would assume various related agreements and has an option to purchase NRG’s interest in Canal 3 at a price equal to investment costs (current investment costs are estimated at $40 million) plus a 13% return on investments.

Additionally, under the term sheet, NRG would retain any NRG benefit plans providing for post-employment or retiree health or welfare benefits and would continue to be liable under the existing NRG OPEB plans for former employees of GenOn as of the plan effective date in an amount up to an actuarial equivalent benefit amount of $25 million. All pension-related matters would remain as settled under the RSA.

With respect to tax matters, upon occurrence of the plan effective date, NRG would have unqualified use of the worthless stock deduction on account of NRG’s ownership of GenOn. GenOn and its subsidiaries would have the use of available losses and NOLs of the NRG consolidated return group in relation to sales occurring in connection with or prior to emergence “(including, for the avoidance of doubt, any so-called ‘partial Bruno’s’ transaction or other transaction treated a sale for tax purposes)” by GenOn for asset sales completed on or before Dec. 31, 2018, provided that any current-year losses or NOLs of GenOn and its subsidiaries may be used by GenOn in connection with asset sales regardless of when such sales occur. State and local taxes resulting from or otherwise realized upon the sale of GenOn group assets would be GenOn’s liability if such liabilities are payable on a separate state or local tax return that does not include NRG or an affiliate of NRG other than a member of the GenOn group.

The term sheet contemplates that, excluding claims under the intercompany revolver, NRG is to be allowed general unsecured claims of $21.8 million on account of prepetition amounts owed under the services agreement and $2 million on account of cash collateralized hedging obligations, while all other prepetition claims that NRG has asserted against the debtors shall be disallowed.

The plan supplement includes a cooperation agreement between the debtors, consenting
noteholders and NRG (dealing with the operational and co-development matters discussed above) and a transition services agreement (discussed above) between the same. Each of the agreements outlines the details of the agreements as contained in the settlement term sheet.

Consent Agreement

The consent agreement, dated Oct. 30, is between GenOn, GAG and required consenting GenOn and GAG noteholders, and it extends the effective date milestone in the debtors’ RSA to June 30, 2018, or to Sept. 30, 2018, if regulatory approvals remain pending. Each of the consenting GenOn and GAG noteholders’ consent to the extended effective dates is contingent upon the bankruptcy court’s entry of a 9019 settlement order substantially contemporaneously with the confirmation order no later than Dec. 14.

The 9019 settlement motion must be filed by the debtors by Nov. 6, and it will seek an order that:
 

• Grants the holders of GAG note claims an administrative claim against the GenOn Energy Inc. debtor in an amount equal to the value of the treatment afforded to holders of Class 5 GAG notes claims under the plan with an amendment to subpart (b) of the plan definition of “GAG Notes Cash Pool” as follows: “(b) beginning on the date that is 180 days after the Petition Date, liquidated damages accruing at an annual rate of 9% of the aggregate principal amount of GAG Notes outstanding plus accrued interest as of the Petition Date (the ‘GAG Payment’), which amounts shall be payable monthly in cash in advance by no later than the first business day of each month (provided that any such liquidated damages accrued in the month of December 2017 shall be paid on January 2, 2018) (the ‘GAG Administrative Claim’), which GAG Administrative Claim shall be allowed irrespective of whether the Plan is consummated; provided, however, that such GAG Administrative Claim shall be deemed satisfied in full upon receipt by such Holders of GAG Notes Claims of the treatment afforded to Holders of Allowed Class 5 GAG Notes Claims under the Plan, provided that the liquidated damages described in this paragraph were paid pursuant to the 9019 Order (such payment, the ‘GAG Payment in Full’), whether upon consummation of the Plan or at any time before the Effective Date, and from any source, with such payment to be made by the Debtors, in consultation with the GenOn Steering Committee”;

• Requires the debtors to pay the holders of Class 5 GAG notes claims the GAG payment monthly in cash in advance by no later than the first business day of each month; and

• Orders that, (i) upon entry of the 9019 order, any consent, approval, amendment, waiver, consultation or termination rights under the plan or the RSA granted to the GAG noteholders shall be limited to events related to (a) any alteration of the treatment afforded to Class 5 GAG note claims under the plan, (b) the invalidation, disallowance, subordination or untimely payment of the liquidated damages portion, of the GAG administrative claim or (c) any alteration or modification to the extended effective dates, (ii) the debtors are authorized to make the GAG payment in full, upon consummation of the plan or at any time before the effective date, and (iii) upon the GAG payment in full, (x) the GAG noteholders shall have no further consent, approval, amendment, waiver, consultation or termination rights under the plan or the RSA, and (y) the GAG escrow amount shall be released.

Form of Settlement Agreement

Pursuant to the form of settlement agreement between NRG and the debtors, the debtors and NRG are required to have executed and delivered to one another the pension indemnity agreement, the tax matters agreement, the transition services agreement and the cooperation agreement, each in a form that is acceptable to the GenOn steering committee for the settlement agreement to take effect.

Under the agreement, NRG shall make a settlement payment to the debtors of $261.3 million less the sum of:
 

• $126.7 million, the amount due under the intercompany revolver including prepetition interest; plus
   
• all postpetition accrued and unpaid interest under the revolving credit agreement; plus
   
• the aggregate amount of all unreimbursed obligations in respect of letters of credit under the revolving credit agreement that are drawn on or after the petition date and remaining outstanding as of the agreement effective date; plus
   
• any other amounts owed to NRG under the revolving credit agreement.

In addition, NRG is to make a cash reimbursement payment to GenOn, if required, in satisfaction of the any amounts due under the 2017 pension payment agreement.

The settlement agreement reiterates that NRG will continue to provide GenOn with the shared services under the services agreement at the rate of $7 million per month, representing the pro-rated portion of the annual fee of $84 million.

The settlement agreement states that on the effective date, either:
 

• GenMA and REMA shall have provided releases to NRG, consistent with the release provisions (as defined and described in the RSA), in form and substance reasonably satisfactory to NRG; or
   
• reorganized GenOn shall indemnify the NRG parties for any claims or causes of action that are the subject of the Release Provisions ever asserted against any of the NRG parties by REMA, GenMA or any of their respective creditors, solely with respect to claims relating to (x) the “Settlement Claims” (as defined in the RSA), (y) the restructuring or the restructuring transactions or (z) the chapter 11 cases arising from the beginning of time through the effective date.

Under the agreement, NRG would have an allowed general unsecured claim in the amount of $21.8 million on account of prepetition amounts owed under the services agreement and an allowed general unsecured claim in an amount not to exceed $2 million on account of cash collateralized hedging obligations.

The settlement agreement says releases will be agreed upon with respect to the claims settled under the agreement.

NRG makes certain representations with respect to its treatment of REMA and GenMA, saying it has not received any transfers, payments or dividends, whether directly or indirectly, from or on account of GenMA or its subsidiaries at any time from or after Jan. 1, 2014, other than amounts paid pursuant to the services agreement, and that it has complied, and has caused its direct and indirect subsidiaries to comply, in all material respects with the documents governing the GenMA leveraged lease transactions.

Finally, the settlement agreement includes details regarding the exit structure of the GenOn debtors. According to a footnote in the agreement, the exit structure may include: “(a) a Taxable Transaction (or Taxable Transactions), including pre-emergence dispositions by GenOn and/or its subsidiaries of certain or all of its (and/or their) assets to one or more GenOn Acquiring Entities or to third parties; (b) reallocation of assets and/or the Tax Attributes within the GenOn group (including in connection with the reorganizations of the GenOn group entities); (c) a Recapitalization Transaction; or (d) some transaction not described in clauses (a) - (c) as determined by GenOn Steering Committee and, in the case of clauses (a) - (d), which is acceptable to NRG in good faith; provided, that any Exit Structure that utilizes current-year losses or NOLs (including NOL carryforwards) of the NRG consolidated return group on or before Dec. 31, 2018, shall not be unacceptable to NRG on the basis of the use of such current-year losses or NOLs; provided, further, that any Exit Structure that utilizes any current-year losses or NOLs (including NOL carryforwards) attributable to GenOn or GenOn’s subsidiaries shall not be unacceptable to NRG on the basis of the use of such current-year losses or NOLs.”

Form of New Exit Financing Documents

The new exit financing in the plan supplement consists of an up to $700 million term loan B, an up to $200 million term loan C and an up to $150 million revolving credit facility. The maturity date for the term loans will be up to seven years after the plan effective date, and the maturity date for the revolving credit facility will be up to five years after the plan effective date.

The financing documents also include a term sheet for the $900 million in senior secured notes that the company may issue in a rights offering backstopped by certain GenOn noteholders. The notes would bear interest at LIBOR plus 10% and would mature five years after the plan effective date. The notes term sheet also includes an indebtedness covenant and restricted payments covenant. Optional redemption prices are as follows:
 

The plan supplement also includes a term sheet for the new subordinated notes that could serve as part of the distribution to GenOn notes claims under the debtors’ plan. The disclosure statement explains that the new subordinated notes would be issued “in an aggregate amount to be determined, in part, by reference to any expected Sale Proceeds yet to be received by the Reorganized Debtors.” The term sheet adds that “the terms of such New Subordinated Notes will provide that such Sale Proceeds, when received, shall be used first to repay the New Subordinated Notes.” The term sheet is silent with respect to the amount, interest rate and maturity of the subordinated notes but does say that the notes will pay PIK interest, and it contains provisional assumptions regarding the relative priority of the notes.

Backstop Commitment Letter

The plan supplement includes a backstop commitment letter relating to the more than $900 million in senior secured exit financing notes. The commitment letter reiterates the terms of the notes and contains deadlines including the requirement that the bankruptcy court enter an order approving the commitment letter, a confirmation order and a settlement order by Nov. 17. The commitment letter also requires that the debtors launch a marketing and syndication of the exit financing on or prior to Nov. 1 and send notice to the backstop parties of the amount of the unallocated financing - the amount of exit financing not covered by the exit facilities excluding the revolver - on or prior to Nov. 28.

New Board of Reorganized GenOn

The reorganized GenOn board shall consist of seven members, subject to increase or decrease at the discretion of the GenOn steering committee, and members would be designated by the GenOn steering committee in its sole discretion. On the effective date, the terms of the current members of the GenOn board of directors shall expire, and the reorganized GenOn board would include those directors set forth in a list of directors of the reorganized debtors that would be disclosed, to the extent known, at or before confirmation. The existing officers of the debtors as of the petition date, who are not also employed by NRG Energy Inc., would remain in their current capacities as officers of the reorganized debtors.