Published December 15, 2012
Edison Mission Energy, a power company that operates in more than a dozen U.S. states, is preparing a possible bankruptcy filing as it tries to restructure about $5 billion in debt, according to a source close to the matter.
Edison Mission, the unregulated power generation business of Edison International, is unlikely to make an interest payment on bonds due on Monday and is preparing a bankruptcy filing as early as Sunday to avoid default, according to the source, who declined to be identified because plans are still being finalized.
Spokesmen for Edison International and Edison Mission did not respond to requests for comment. An investor relations representative for Edison International declined to comment.
Edison Mission, based in Santa Ana, California, 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.
It has suffered as the 2008 recession cut power demand. Wholesale power prices have also fallen with cheaper natural gas, making it harder for Edison's coal-fired plants to remain competitive.
Edison Mission 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 is hoping to secure some creditor support for its plans ahead of a bankruptcy, the source said. But the person added that the filing is not expected to be a "prepackaged" bankruptcy, in which the terms of the reorganization are largely prearranged with most of the creditors.
Edison Mission owes roughly $3.7 billion in unsecured bonds. A large portion of that is held by a group of hedge funds including York Capital Management, which invests heavily in distressed debt.
Edison's subsidiaries hold roughly $1.5 billion in other debt, the source said.
The company has hired restructuring lawyers from Kirkland & Ellis and financial advisers from Moelis. Its bondholders have tapped law firm Ropes & Gray and financial adviser Houlihan Lokey.
Like many other owners of older coal plants, Edison faces costly upgrades to meet stricter state and federal emission standards to keep its coal plants running. It has already announced plans to shut some coal-fired plants in Illinois rather than invest to clean them up.
As part of a restructuring, Edison International Chief Executive Ted Craver has told investors that Edison Mission may also have to refinance leveraged leases at two coal plants leased by Edison Mission's Midwest Generation unit.
The bondholders who financed those leases have hired restructuring lawyers from Cadwalader Wickersham & Taft.
It is unclear how Edison Mission's unsecured debt would be restructured if the company filed for bankruptcy. Bondholders traditionally demand equity in a reorganized company, but for Edison International, giving up equity in Edison Mission could mean losing certain tax breaks related to operating losses, said the person familiar with the matter.
Federal tax laws allow companies to offset taxable income with operating losses at their subsidiaries, but only if they retain at least 80 percent of the unit's equity.
(Reporting By Nick Brown in New York; Additional reporting by Eileen O'Grady in Houston; Editing by Michael Perry)