FirstEnergy nuclear bailout would be a win for bondholders


The fate of two Ohio nuclear reactors operated by bankrupt FirstEnergy Solutions hangs in the balance as lawmakers continue to weigh the costs of a bailout plan.

If passed the legislation would create upside for holders of roughly $2 billion of debt issued by FirstEnergy because it would enhance and assure what can be paid pack to them under the company’s Chapter 11 reorganization, said James Spiotto, a managing director at Chapman Strategic Advisors LLC in Chicago.

FirstEnergy Solutions reorganization plan provides for shutting down two nuclear reactors Ohio lawmakers are trying to save.

Bloomberg News

However, the reorganization plan does not depend on the legislation.

“The restructuring is not contingent on bailout legislation or a change in decommissioning of the plants, as the plan provides,” Spiotto said. “However the legislation, if it passes, means operation would continue beyond the decommission dates of the plants and provide a subsidy for power generated and provided by those plants, all of which will enhance feasibility and monies available for plan purposes,” Spiotto said.

The Ohio House of Representatives passed the nuclear bailout bill in May. The Ohio Senate worked on its own version of the bill and state legislators are now working toward final passage of the bill by July 17, FirstEnergy Solutions said.

The house version of the bill would charge ratepayers a monthly surcharge of $1 per month to raise about $190 million per year in subsidies. The Senate version of the bill would raise $150 million per year.

FirstEnergy Solutions said on July 1 that it remains unable to purchase the fuel required for the plants next refueling cycle without the bailout. According to the company, strict guidelines require that the plants must refuel every two years and the next refueling will come in February 2020.

“We remain on path for a safe deactivation and decommissioning,” it said in a press release. “Should we receive the long-term certainty that comes with an affirmative vote within this timeframe, we will immediately reevaluate our options.”

The latest version of the company’s plan of adjustment would pay bondholders a mix of cash, stock, and other assets for a projected recovery of 66.6%, according to Municipal Markets Analytics.

FirstEnergy Solutions drafted and filed the amended plan that was approved by US bankruptcy judge Alan Koschik on May 29. Bondholders have until Aug. 2 to file objections and a hearing of confirmation of the plan has been scheduled for Aug. 20.

The company has roughly $1.5 billion of unsecured municipal bond debt and roughly $690 million in secured muni debt issued through Pennsylvania’s Beaver County Industrial Development Authority, the Ohio State Air Quality Development Authority and the Ohio Water Development Authority. The private power plant operator sold the tax-exempt debt to fund air and water pollution control facilities and sewage and solid waste facilities at its power generation plants.

Secured bondholder claims are expected to be fully compensated under the company’s reorganization plan while unsecured claim recovery rates would be between 25.5% and 31.4%, according to the latest plan filed by FES on April 18.

The company’s impaired creditors may vote on the plan. Creditors with unsecured claims will have a choice between receiving cash or newly issued stock in the reorganized company.

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