April 18, 2019 – The Debtors filed a Fourth Amended Plan and a related Disclosure Statement [Docket Nos. 2529 and 2530]. The Debtors also filed redlines of these documents showing changes from the versions filed on April 1, 2019 [Docket No. 2533]. Amendments to the Fourth Amended Plan reflect the removal of certain nonconsensual third party releases in favor of certain non-debtor affiliates of the Debtors (the "Non-Debtor Released Parties") that had in the opinion of numerous objectors (and ultimately the Court) rendered the Plan unconfirmable. Consensual third party releases (ie those agreed by any claims holders voting in favor of the Debtors' Plan) largely remain in place.
Language, now deleted from the Disclosure Statement, decribed the concern as follows: "The United States on behalf of the Environmental Protection Agency and Nuclear Regulatory Commission, Office of the Ohio Attorney General, acting on behalf of the Ohio Environmental Protection Agency and the Ohio Department of Natural Resources, and the Commonwealth of Pennsylvania, Department of Environmental Protection (the ‘Governments’) contend that the Plan cannot be confirmed because it contains unlawful non-consensual, non-debtor releases for the FE Non-Debtor Released Parties. The Governments contend that granting the releases which include releases of independent, non-derivative liability would exceed the Bankruptcy Court’s jurisdiction, and that therefore the Plan may be unconfirmable."
The above, now deleted language, has effectively been replaced by: "Prior proposed versions of the Plan contained a non-consensual release by Holders of Claims and Interests against the Debtors in favor of the FE Non-Debtor Released Parties. As discussed below, as a result of the Court’s rulings at a hearing held on April 4, 2019, FE Non-Debtor Parties have consented, subject to the Bankruptcy Court’s approval of the Consent and Waiver (defined below) to remove such nonconsensual FE third party releases from the Plan."
Background
On April 11, 2019, the Court hearing the FirstEnergy Solutions Corp ("FES") cases issued an order denying the Debtors' motion requesting approval of their Disclosure Statement [Docket No. 2500]. The Court's order stated, "Due to the breadth and ambiguity of the nonconsensual third-party releases proposed in Section VIII.E. of the Plan, the Court concludes that the Plan is patently unconfirmable."
In an April 4, 2019 press release responding to the Court's [then oral] ruling, FES stated that "it expects to submit a revised Disclosure Statement for its proposed Plan of Reorganization ('the Plan') to the U.S. Bankruptcy Court overseeing its Chapter 11 restructuring."
John Judge, CEO and President of FES, added "Working with our advisors, we have already initiated action to address the Court's ruling and will submit a new request to have the disclosure statement approved in a timely manner. The Company remains focused on a plan that will significantly strengthen its financial position and allow it to exit Chapter 11 in 2019."
On March 12, 2019, the Federal Energy Regulatory Commission (“FERC”) objected [Docket No. 2266] to the Debtors' Disclosure Statement. The FERC objection stated, inter alia, “The Plan, as currently proposed, cannot be confirmed because it includes broad non-consensual non-Debtor releases and third party injunctions that are prohibited under Sixth Circuit precedent. It is well-settled that bankruptcy courts have the authority to refuse approval of disclosure statements when the chapter 11 plans underlying them are unconfirmable.
The Plan also fails to meet the Dow Corning standard because it could be interpreted to release and enjoin claims of the United States and its agencies against non-debtors but does not provide for the United States to vote on the plan on account of these non-debtor claims or receive full, or any, recovery on released non-debtor claims that are not identical to claims against the estates…Because the Dow Corning requirements that nonconsenting parties vote for the Plan and receive payment in full on their claims cannot be satisfied for the United States, the Debtors should not be permitted to solicit acceptances of a Plan that on its face contravenes Sixth Circuit law by imposing releases of the United States’ claims against non-debtors…Further, solicitation should not be permitted of this Plan because the Debtors will be unable to amend the Plan’s release provisions prior to confirmation to cure any deficiencies related to the releases.”
Amended Fourth Plan and Disclosure Statement
The Disclosure Statement provides the following overview of how the revised Plan settles concerns over the nonconsensual third party releases in favor of the FE Non-Debtor Released Parties, "The Court held an initial hearing to consider approval of the Disclosure Statement for the Third Amended Joint Plan of Reorganization of FirstEnergy Solutions Corp. et al., Pursuant to Chapter 11 of the Bankruptcy Code on March 19, 2019 (the ‘Initial Disclosure Statement Hearing’). The Court considered various objections at the Initial Disclosure Statement Hearing, including objections from the Governments, the United States Trustee and certain other parties to certain nonconsensual third party releases in favor of the FE Non-Debtor Released Parties.
The objecting parties asserted that the inclusion of such nonconsensual third party releases rendered the Plan “patently unconfirmable” such that the Disclosure Statement should not be approved. On April 4, 2019, the Court issued an oral ruling that the Plan was ‘patently unconfirmable’ because of the nonconsensual third party releases in favor of the FE Non-Debtor Released Parties. Following the Court’s oral ruling, the Debtors engaged in negotiations with the FE Non-Debtor Parties, in consultation with the Consenting Creditors and the Committee, on the terms of an amended plan and disclosure statement. As a result of these negotiations, on April 18, 2019, the Debtors and the FE Non-Debtor Parties executed that certain Consent and Waiver Agreement between the Debtors and the FE Non-Debtor Parties (the ‘Consent and Waiver’), pursuant to which the Debtors and the FE Non-Debtor Parties agreed as follows:
- The FE Non-Debtor Parties, subject to the Court’s entry of the Consent and Waiver Order, agreed to irrevocably waive: (i) any right to terminate the FE Settlement Agreement pursuant to Section 11.2 thereof as a direct result of an Adverse Ruling or a Condition Failure Scenario (each as defined in the FE Settlement Agreement) occurring as a result of the failure to obtain approval of the nonconsensual third party releases, (ii) any conditions to the Plan Effective Date set forth in Section 10.2(c) and Section 10.2(e) that directly relate to the nonconsensual third party releases set forth in Section 6.3(a) of the FE Settlement Agreement, subject to the provisions of the Section 3 of the Consent and Waiver, (iii) any breach of the FE Settlement Agreement, including, without limitation, pursuant to any provision of Article VI of the FE Settlement Agreement directly resulting from the failure to obtain approval of the nonconsensual third party releases, and (iv) any arguments, assertions, claims or defenses that the agreements, covenants and obligations of the FE Non-Debtor Parties under the FE Settlement Agreement (including, without limitation, the agreements set forth in Articles II and III of the FE Settlement Agreement) are no longer effective or enforceable as a result of the failure to obtain approval of the nonconsensual third party releases.
- The Debtors agreed that any Plan will provide consensual third party releases in favor of the FE Non-Debtor Parties that are the same as any consensual third-party releases provided in favor of the Other Released Parties. Nothing in Section 3 of the Consent and Waiver will be deemed to waive the rights of the FE Non-Debtor Parties under Section 10.2(c) of the Settlement Agreement; provided, that, the Plan Releases (as defined in the FE Settlement Agreement) to be included in any Plan shall be deemed to be the FE Non-Debtor Parties’ Consensual Releases (as defined in the Consent and Waiver).
- The Debtors agreed to pay FE Corp. (or its applicable subsidiary) $60.4 million satisfying amounts owed by the Debtors to FESC with respect to (i) charges for the Voluntary Early Retirement Program (“VERP”) for FESC under the Amended Shared Services Agreement (the “Amended SSA”) in full settlement of all amounts due and owing by the Debtors with respect to the VERP and (ii) service costs associated with the Debtors’ participation in the qualified pension plan (the “Pension Plan”) sponsored by FE Corp. for the period beginning April 1, 2018 through March 31, 2019.
- Beginning April 1, 2019 and for so long as one or more Debtors continue to participate in the Pension Plan, each of the Debtors participating in a Pension Plan will continue to pay only the service costs to FE Corp. with respect to such Pension Plan, such service costs will be calculated based upon the individual employees of the Debtors participating in such Pension Plan as of March 31, 2019 and otherwise will utilize the same assumptions as used to determine the service cost allocation for the FE Non-Debtor Parties that participate in the Pension Plan. After April 1, 2019, the service cost calculation will be adjusted quarterly based upon each participating Debtor’s actual individual employees at the end of the immediately prior quarter, with all other assumptions only adjusted annually in the ordinary course and using the same assumptions as used to determine the service cost allocation for the FE Non-Debtor Parties that participate in such Pension Plan. The FE Non-Debtor Parties will provide the Debtors with calculations for such service costs at least thirty (30) days prior to the end of the quarter for which such service costs are being charged. The Debtors will make such payments of service costs on the first business day of the quarter immediately following the quarter for which the service costs were calculated. In the event that the Plan Effective Date occurs on any day other than the last day of the quarter, the FE Non-Debtor Parties will provide the Debtors with calculations for the final quarter’s pro-rated service costs at least thirty (30) days prior to the end of the final quarter for which such service costs are being charged. The Debtor will make such payments of pro-rated service costs on the first business day of the quarter immediately following the final quarter for which the pro-rated service costs were calculated.
- Beginning on April 1, 2018, and for so long as one or more Debtors continue to participate in the Postretirement Health and Welfare Plans sponsored by FE Corp., each of the participating Debtors will only be obligated to pay to FE Corp. (or its applicable subsidiary) service costs for participating former employees receiving retiree medical and life insurance benefits under such plans; notwithstanding the foregoing, until the Plan Effective Date, the Debtors will continue to make payments in the ordinary course with respect to the ongoing claims and premium costs of its participating former employees. The Debtors will make service costs payments within 30 days of receipt of an invoice for such costs. The Debtors filed further amended versions of the Plan and Disclosure Statement on April 18, 2019, along with a motion to approve the Consent and Waiver, and a second hearing to consider the Disclosure Statement was held on May 20, 2019."
The following exhibits were attached to the Plan:
- Exhibit A: Distributable Value Splits
- Exhibit B: FE Settlement Agreement
The following exhibits were attached to the Disclosure Statement:
- Exhibit A: List of Debtors
- Exhibit B: Plan of Reorganization
- Exhibit C: Current Corporate Structure of the Debtors and Certain Non-Debtor Affiliates
- Exhibit D: Financial Projections
- Exhibit E: Valuation Analysis
- Exhibit F: Liquidation Analysis
- Exhibit G: Disclosure Statement Order
- Exhibit H: Restructuring Support Agreement
- Exhibit I: Letter of Official Committee of Unsecured Creditors in Support of Plan
The Court scheduled a confirmation hearing for July 15, 2019.
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