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Brazos Electric Power Cooperative, Inc. – Seeks Fourth (Short) Extension of Exclusive Plan Filing Period and Files Summary of Mediation Settlement Reached with ERCOT (but Not Yet with Creditors’ Committee); Confident Plan Can be Filed by September 1st

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July 25, 2022 – The Debtor filed a motion to extend (for a fourth time) the periods during which it has an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including September 1, 2022, and October 31, 2022, respectively [Docket No. 2058]. Absent the requested relief, the Plan filing, and solicitation periods are scheduled to expire on July 26, 2022, and September 22, 2022, respectively. 

What would normally be a relatively obscure filing comes with a significant attachment: The Mediated Plan Summary. 

The Debtors' motion notes: "the Debtor now believes it has an agreement in principal with the majority of the major constituents in this Chapter 11 Case as reflected in the 'Summary of Principal Economic Terms of Mediated Settlement' (the 'Mediated Plan Summary'), attached as Exhibit 1 hereto. The Debtor is confident that the Mediated Plan Summary forms a solid basis for a confirmable chapter 11 plan that maximizes value to the Debtor’s creditors while at the same time minimizing, to the fullest extent that the circumstances will allow, the impact on the Debtor’s members and the ultimate consumer ratepayers.

The settlement reached in the mediation and summarized herein remains subject to further documentation agreeable to each supporting mediation party, and is currently being documented in a proposed Chapter 11 Plan of Reorganization of Brazos Electric Power Cooperative, Inc. (the “Plan”), first drafts of which have already been shared with those mediation parties that are supportive of the settlement reached…and the Debtor has in-person meetings with ERCOT set for the first week of August to further discuss Plan mechanics and implementation matters. The Debtor is confident that it can file its plan no later than the requested Exclusive Filing Period expiration of September 1, 2022."

A hearing on the motion is scheduled for August 17, 2022.

Mediated Plan Summary

The following summarizes the principal economic terms of the settlement that was reached, in principal, between various of the key economic stakeholders in connection with the mediation process conducted by the Honorable Marvin Isgur in connection with the chapter 11 bankruptcy case (the “Bankruptcy Case”) of Brazos Electric Power Cooperative, Inc. (the “Debtor” or “Brazos”) that is pending in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). The settlement reached in the mediation and summarized herein remains subject to further documentation agreeable to each supporting mediation party, and is currently being documented in a proposed Chapter 11 Plan of Reorganization of Brazos Electric Power Cooperative, Inc. (the “Plan”), first drafts of which have already been shared with those mediation parties that are supportive of the settlement reached.

Negotiations with the Official Committee of Unsecured Creditors remain ongoing.

Member TAA Balances / Securitization

The securitization, as proposed by the mediation securitization subcommittee, will occur. Estimated net proceeds are $1,863,861,000.1 Each Member may participate in a Brazos-led securitization to pay its respective “Temporary Affordability Adjustment” (or TAA) balance or otherwise pay its TAA balance through its own securitization transaction or other form of financing; provided, however, that, in either case, each Member shall pay its respective TAA balance, if any, on the Plan’s effective date.

Additional Plan Funding

The Debtor will apply $116.8 million of current working capital to additionally fund Plan payments. The Debtor will also apply $49.2 million of estimated Congestion Revenue Rights (CRR’s) and other prepetition payments ERCOT owes Brazos to fund Plan payments. If there is a shortfall of these amounts, Brazos will borrow on its exit revolver to fund any shortfall.

Generation Sale2

After the effective date of the Plan, Reorganized Brazos will divest its generation assets in one or more asset sales, wind down its power-supply business, and transition the Brazos cooperative from a “generation and transmission” electric cooperative to a “transmission and distribution” cooperative. This sale of generation assets will cause the release of $50 million of certain collateral currently being held by ERCOT. The mediation parties have agreed on the allocation of anticipated generation sales proceeds, which allocation remains confidential so as to not impact the future sales process.

RUS and Amended ARCs3

The Debtor will request an advance from RUS of $129 million for Capital Expenditures already completed. This funding pursuant to an existing RUS loan has already been requested by Brazos and approved by RUS. As a prerequisite of the Plan, the consenting Plan Members will agree to extend the termination date of the All Requirements Contract (“Amended ARC”) from 2045 to 2060 for Transmission & Distribution only; RUS will fund the loan with a 35-year term (i.e., the useful life of assets). The Amended ARC will be on substantially the same terms as the current agreement, modified to, among other things, remove power-supply provisions. The anticipated effective date of the Amended ARCs will be March 1, 2023.

The Debtor will paydown RUS indebtedness by approximately $553 million (inclusive of $99.2 million currently on deposit in the Debtor’s cushion of credit account) and assume the balance of the RUS Secured Notes.

Treatment of Certain Claims4

  • RUS Secured Claims: The RUS Secured Claims will be treated as agreed to between RUS and the Debtor in the Plan.
  • Prepetition Revolving Credit Facility Secured Claims: The secured portion of the unsecured Prepetition Revolving Credit Facility (approx. $123.9 million) will be paid in full in cash on the effective date.
  • Administrative Claims: Allowed administrative claims (including any allowed bilateral gas and power supplier claims)5 will be paid in full in cash on the effective date or, as applicable, upon allowance of such claims or in the ordinary course of business.
  • DIP Facility Claims: The Debtor is working with the DIP Agent and DIP Lenders to negotiate the terms of a potential conversion of the DIP Facility into the “Exit Facility,” which revolving facility would be used by Reorganized Brazos for working- capital and other corporate purposes. It is anticipated that the Exit Facility will be reduced from the existing $350 million DIP facility following the Debtor’s sale of its generation assets post-effective date.
  • General Unsecured Claims: It is anticipated that the Plan will provide for both a General Unsecured Claims Class and a General Unsecured Convenience Claims Class. The terms of treatment for each of those Classes is still under consideration and discussion.
  • Tort Claims: It is anticipated that the Plan will provide for both a Tort Claims Class and possibly a Tort Convenience Claims Class. With respect to the Tort Claims Class, it is currently anticipated that tort claimants will pass through and receive only the recovery available, if any, under the Debtor’s applicable insurance policies. The possible creation of, and terms of, any proposed treatment of a Tort Convenience Claims Class is still under consideration and discussion.

ERCOT/Market Participants

ERCOT Claim: In full and final satisfaction of the Allowed ERCOT Claim, ERCOT shall retain $381,141,446 in prepetition distributions that ERCOT received from the Debtor and receive $599,709,610 in Cash on the effective date.

Settlement Terms6

In addition, ERCOT (i.e., market producers/generators) will be paid additional amounts that will be distributed by ERCOT to the applicable Market Participants in accordance with their respective elections under the following options:

  1. Option 1
    1. A cash payment of up to $553,819,122 on the effective date; plus
    2. A cash payment of up to $116,600,000 on the sale of the generation facilities, to be completed by a date certain after the effective date; plus
    3. 12 cash payments of up to $13,833,333 per year for 12 years, totaling up to $166,000,000.
  2. Option 2
    1. Cash payments totaling up to $1,286,886,127, payable annually over 30 years, without interest. The Debtor will compile, in its sole discretion, a schedule of fixed payments based on its annual cash flows and planned debt payments to RUS, which vary from year to year. However, once the schedule is finalized, the scheduled payments will be fixed and mandatory.

Other Amounts and Matters: The Debtor shall pay in full all ERCOT default-uplift invoices issued under Protocols § 9.19.1 (to the extent that such invoices relate to default uplift for post-Winter Storm Uri short pay) and all invoices related to any ERCOT Alternative Dispute Resolution (ADR) or PUCT proceeding related to another Market Participant that is considered final and non-appealable and that impacts the Debtor’s prepetition market activities as a resettlement to the wholesale market. For example, such default-uplift invoices include the invoices in the total amount of $8,762.13 issued to the Debtor on May 27, 2022. If a market resettlement occurs because of a final and non-appealable determination that the PUCT Orders were invalid or should otherwise be vacated, the Debtor shall be excused from any subsequent default uplift arising directly from such a determination.

Mechanics, Approvals and Consents: ERCOT, the Debtor, the Defendant Intervenors, and, as applicable, other stakeholders are continuing to negotiate and finalize the various mechanics and procedures necessary to implement the ERCOT settlement.

Pension and Retiree Benefits

The Debtor’s pension and health/retiree obligations, if any, will be assumed.

Consenting Member Co-Ops

 

The Debtor and each consenting Member will exchange full mutual releases for all matters arising out of or related to Winter Storm Uri.

The consenting Members will execute an amended ARC eliminating the power-supply provisions, but otherwise fully passing through applicable costs.

It is anticipated that all consenting Members will purchase their own wholesale power supply to serve their retail customers commencing March 1, 2023, due to the time necessary for the consenting Member to arrange for the alternative power supply.

Amelioration Fund

 

On the effective Date, the Debtor will fund $140,000,000 into an amelioration hardship fund to be administered by a third party to provide relief to qualifying consumer ratepayers. The third party will be solely responsible for administration of the fund. Any retail customer of a Brazos Member that received Winter Storm Uri charges from Brazos may apply for a subsidy.

The administrator will establish such procedures and policies for the award of hardship funds as determined by the administrator. The administrator must provide subsidies for 10 years. Brazos will have no obligation to fund any additional amounts beyond the $140,000,000.

Stay of ERCOT Litigation

The ERCOT litigation will be abated while the parties implement the mediated settlement through the Plan.

Alternative Payment Arrangements

The settlement payment obligations set forth herein are for fixed payments. However, if the Debtor is unable to make a fixed payment without an adverse effect on Reorganized Brazos, Reorganized Brazos may: (a) borrow, from any source, funds to make the fixed payments; or (b) defer the fixed payment for up to 12 months; provided, the deferral may only occur if Reorganized Brazos immediately places on the market for sale, and then concludes a sale within 12 months of transmission assets sufficient to cover any missed fixed payment.

  1. Negotiations are ongoing with certain power suppliers, which could reduce this securitization amount. This amount may also be reduced further depending on any future negotiations and/or litigation results relating to the swap counterparties and/or gas claimants, each claims of which are currently the subject of contested matters or an adversary proceeding before the Bankruptcy Court.
  2. See June 10 Proposal ¶¶ 3.
  3. See June 10 Proposal ¶¶ 4, 5.
  4. See June 10 Proposal ¶¶ 9, 10, 11, 12, 13.
  5. The Debtor notes that some of these claims are currently the subject of pending litigation. For the avoidance of doubt, the Debtor will only pay in full claims that are ultimately allowed as administrative claims, and the Debtor reserves all rights in the pending (or any future) litigation of such claims.
  6. See June 10 Proposal ¶¶ 12, 15.

The Extension Motion

The motion provides: "Since the Petition Date, the Debtor diligently has strived to build a consensus among key stakeholders and steer this Chapter 11 Case toward a successful reorganization. Despite unique, if not unprecedented, complexities and challenges involving the Debtor’s corporate structure and the unprecedented pre-petition events that forced the Debtor into bankruptcy, the Debtor now believes it has an agreement in principal with the majority of the major constituents in this Chapter 11 Case as reflected in the ‘Summary of Principal Economic Terms of Mediated Settlement’ (the ‘Mediated Plan Summary’), attached as Exhibit 1 hereto. The Debtor is confident that the Mediated Plan Summary forms a solid basis for a confirmable chapter 11 plan that maximizes value to the Debtor’s creditors while at the same time minimizing, to the fullest extent that the circumstances will allow, the impact on the Debtor’s members and the ultimate consumer ratepayers.

The Mediated Plan Summary reflects the result of intense and concerted efforts of the Debtor, its major stakeholders, and Judge Isgur, all of whom fully participated in and committed to the mediation process, which has now spanned several months, beginning in March 2022. While that mediation was initially focused on resolving the ERCOT adversary proceeding, it later expanded to include over 40 parties, ultimately culminating in multiple and comprehensive mediation proposals outlining the key economic concepts and terms. The Mediated Plan Summary adopts and incorporates key concepts and economic terms from the mediator’s most recent June 10th proposal that the Debtor believes have been agreed to, in principal, between it and the majority of the major stakeholders, along with other key terms and concepts from the Debtor’s separate consensual exit plan construct that the Debtor had been negotiating on a parallel path with its members and other parties.

Although there has been remarkable progress, considerable work remains to be done. The Debtor is now focused on finalizing the agreement in principal reached with the major stakeholders and working through a myriad of related complex and challenging implementation issues, including those of informational, mechanical, due diligence, and regulatory nature. To this point, the Debtor and its representatives have scheduled an in person meeting with ERCOT and its representatives in early August to work through these and other plan related issues. The Debtor is confident that it will finalize and file a plan before the requested Exclusive Filing Period [ie September 1st] that will be supported by the majority of the major constituents in this Chapter 11 Case, and the Debtor is committed to working closely with these parties to achieve that result. Indeed, the Debtor has already circulated key portions of its draft Plan to various key stakeholders and mediation parties for review and comment, and the Debtor anticipates working closely with all such parties to finalize such draft Plan over the next few weeks.

Again, from the Debtor’s perspective and in light of the various complexities associated with this case, the Debtor is exactly where it should be at this stage of the case, and the Debtor continues to make material progress. Since the last exclusivity extension, the Debtor has now objected to the rejection damage claims filed by Sandy Creek Energy Associates L.P. (‘SCEA’), the Chapter 7 Trustee for Brazos Sandy Creek Electric Cooperative, Inc. (the ‘BSCEC Trustee’), and Computershare Trust Company, N.A.—the indenture trustee for BSCEC notes (collectively, the ‘Rejection Damages Litigation’). The Rejection Damages Litigation is on a fast track to be resolved in September 2022, with a potential resolution even earlier through the filing of dispositive motions or the ongoing and ‘dual-track’ mediation with Judge Isgur. Resolution of the Rejection Damages Litigation prior to confirmation of the plan will also provide increased transparency for creditors regarding key plan provisions and, thus, further justifies an extension of the Exclusive Periods.

…not extending the Debtor’s exclusivity period now would eviscerate the time and efforts of the mediator and the parties who have spent countless hours over the past 4 months to reach an agreement to resolve the ERCOT litigation and other key economic terms of a plan.”

Settlement Background

On June 30th, the Wall Street Journal reported on an imminenet settlement, noting: "The oldest and largest power cooperative in the state has an agreement in principle that would resolve disputes around the bills it received from the Texas grid operator after 2021’s Winter Storm Uri, Brazos lawyer Louis Strubeck said during a court hearing Thursday.

Power regulators raised prices during the storm in a failed effort to counter blackouts, driving Brazos and a handful of other energy retailers in Texas to chapter 11. The co-op has been battling in bankruptcy court to drive down its $1.9 billion invoice from the Electric Reliability Council of Texas, the clearinghouse for buying and selling electricity in the state’s deregulated market.

Mr. Strubeck said the proposed agreement lays a path for the co-op to exit from chapter 11 while selling certain assets and preserving its ownership by 16 smaller member co-ops. Brazos would also restructure its supply contracts with its member co-ops and sell securitized bonds to cover its obligations.

Texas lawmakers after the storm allowed co-ops like Brazos to issue securitization debt, backed by customer surcharges, to pay their debts to Ercot by borrowing at better interest rates than they could otherwise achieve.

Securitization represents 'the most economic way we can satisfy our obligations with the least impact on ratepayers,' Mr. Strubeck said. He added the proposed agreement remains subject to further talks and certain contingencies including board approval.

Kevin Lippman, a lawyer for Ercot, said there are “significant noneconomic points” that will require further negotiation, but 'we remain optimistic we will get there."

As reported previously, litigation over the proper amount of Ercot’s claim was paused earlier this year to allow for negotiations. The Debtor argued leading up to that pause that it should have only been billed $770 million in connection with the storm.

A subsequest article published by the Wall Street Journal on July 14th said the settlement is expected to be completed by September 1, 2022. "The creditors committee still opposes the deal and Ercot has yet to sign off on it," that report then noted.

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The post Brazos Electric Power Cooperative, Inc. – Seeks Fourth (Short) Extension of Exclusive Plan Filing Period and Files Summary of Mediation Settlement Reached with ERCOT (but Not Yet with Creditors’ Committee); Confident Plan Can be Filed by September 1st appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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