--A massive coal-fired power plant in Homer City, Indiana County, is now in bankruptcy, its second reorganization effort in five years.
Homer City Generation LP filed for Chapter 11 bankruptcy protection today, expecting a swift process that will eliminate some $607 million in debt while continuing to operate the power plant without interruption.
The company has been anticipating this move for months. It toyed with selling the power plant, having put the asset up for sale a year ago. But its debt holders rejected several bids that came in and decided to reorganize instead. As part of the effort, its debt holders will become equity owners in a holding company formed to owned the asset.
Since early October, when Homer City missed a debt payment, it has been keeping its debt holders at bay as the parties negotiated the next step.
In the meantime, Homer City's largest coal vendor, Cecil-based Consol Energy Inc., sued the power plant and its corporate parent, GE Capital, alleging they weren't honoring a coal supply contract signed two years ago. Consol asked the court to prevent Homer City from selling the plant or otherwise restructuring until the lawsuit is resolved.
Earlier this week, however, Homer City and Consol settled the case paving the way for the power plant's next steps. The settlement included a new two-year coal supply contract for Consol.
The power plant, which employs 245 people and has the capacity to power 2 million homes, was built in the 1960s and 1970s. Its three units have undergone significant upgrades, including a $750 million pollution control makeover funded by GE Capital, which rescued Homer City from bankruptcy in 2012.
Last year, however, GE announced it wanted to part ways with Homer City, which has suffered from competition with low-cost natural gas, low power prices, environmental compliance costs, and shifting market dynamics which transformed the facility from a constant source of baseload power to a plant that must dial up and down to follow the demand curve.
Those kinds of fluctuations take a toll on the power plant's equipment, an engineer that reviewed the company's situation on behalf of its debt holders stated. That means Homer City has to devote more of its budget to maintenance and capital projects.
As was the case before its previous bankruptcy in 2012, Homer City recently took steps to delay some of those projects to cut costs. But they are still necessary, the company noted, as are a number of other projects, including pollution upgrades that will limit emissions of nitrogen oxide.
In fact, the company's five year plan "would require increased operating, maintenance and capital spending above what the company has historically spent and potentially above industry averages," the bankruptcy documents state.
Homer City expects it will be able to handle those commitments and pay its regular vendors without interruption, the company wrote in a series of documents filed this week.
It has about $15 million in payments to vendors and suppliers coming due in the near future and, with $10 million in cash on hand, it expects to generate enough to pay its contractors as the invoices come in, Homer City's documents state.
The company "intends to pay suppliers for all goods and services provided after the filing date under normal terms and conditions," it assured in bankruptcy documents.
In analyzing how the company would fare if it chose to simply liquidate and sell its assets, Homer City concluded it might recover only between $42 and $60 million, mostly from its cash on hand, money owed to it by customers, and existing inventory of coal, oil, and limestone. Its power plant components and the vast expanse of land that hosts the plant would be worth very little, the analysis showed -- less than 5 percent.
Homer City expects the bankruptcy process to make its way through the courts within a few months, the company stated. It hopes to exit bankruptcy with a new, $150 million loan.
Anya Litvak: email@example.com or 412-263-1455.
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