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Law360 (June 18, 2020, 5:55 PM EDT) -- The owner of two gas-fired power generating stations filed for Chapter 11 on Thursday in Delaware, saying decreasing energy demands and dwindling gas prices have hurt its bottom line and forced the company into its third bankruptcy since 2014.
In initial court filings, NorthEast Gas Generation LLC said it is looking to deleverage its balance sheet and reduce its $585 million debt load after years of historically low natural gas prices and a sustained drop in demand due to unusually high winter temperatures and the COVID-19 pandemic.
"Under normal operating conditions, the debtors' steady cash flows would enable them to reliably service their funded debt obligations and weather ordinary variations in customer demands, but recent extraordinary fluctuations in the energy market have presented the debtors with new balance sheet challenges," Dale E. Lebsack Jr., president of NorthEast Gas, said in a first-day declaration.
Beginning in March, the debtor began negotiating with its secured lenders on potential strategic alternatives that included a sale of assets or a balance sheet restructuring, but liquidity problems continued, Lebsack said. NorthEast Gas realized it would run out of cash by early June and obtained a nearly $1 million emergency bridge loan from lenders under its senior credit facility to provide enough money to get the debtor to the petition date.
Those same lenders have agreed to provide $40 million in post-petition financing, as well as sufficient cash to roll up the $1 million bridge loan, according to the declaration.
The lenders imposed certain milestones on the debtor's case, which require the filing of a Chapter 11 plan within 60 days of the petition date, with confirmation required 45 days after that.
NorthEast Gas comes to court with $554 million in first-lien secured debt and $30.5 million in second-lien secured debt, according to the declaration. Another $13.3 million in trade debt is also on the debtor's balance sheet.
The debtor operates two gas-fired electricity generation stations. The larger facility is in Athens, New York, and has a peak capacity of 1,080 megawatts. It began operations in 2004. The second facility is in Charlton, Massachusetts, and puts out 360 megawatts. It powered up in 2001.
The company filed for Chapter 11 protections for the first time in 2014, through which NorthEast Gas reduced its outstanding debt obligations by more than $600 million by exchanging its then-second-lien debt for 93.5% of the equity in a reorganized company while giving existing equity holders the remaining shares, Lebsack said. The second case commenced in 2018 and reduced the debt load of the company by another $70 million and turned over the equity of an operating affiliate to former senior lenders.
The current case has been assigned to U.S. Bankruptcy Judge Mary F. Walrath, who presided over both previous cases. A first-day hearing is scheduled for 11:30 a.m. Friday.
The debtor is represented by Mark D. Collins, Daniel J. DeFranceschi, Jason M. Madron, Brendan J. Schlauch and David T. Queroli of Richards Layton & Finger PA.
The case is In re: NorthEast Gas Generation LLC, case number 20-11597, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Haylee Pearl.
For a reprint of this article, please contact reprints@law360.com.
