Talen files for bankruptcy after energy hedges drain money (4)

Talen Energy Corp. placed its Talen Energy Supply unit in Chapter 11 bankruptcy on Monday after rising electricity and gas prices disrupted its hedges and triggered a liquidity crunch.

At least eight of the company’s 18 power plants depend on natural gas to generate electricity, which means that when prices have soared in recent months, Talen has been “exposed to market price volatility”. Ryan Omohundro said in court documents.

Talen’s strategy of using derivatives to manage volatility in the commodity and electricity markets backfired when electricity and natural gas prices soared last year, depending on the file. The hedges forced the company to post more cash collateral for its counterparties, causing a “significant liquidity squeeze,” Omohundro said.

“These cash requirements were far beyond what (the company) could have anticipated or was able to fund,” he said.

Talen Energy Supply, the company’s debt issuance vehicle, said it has reached a restructuring agreement with a group of bondholders that will see creditors inject up to $1.65 billion in new equity, according to a statement tuesday. The company is due in bankruptcy court at 4 p.m. Tuesday in Texas.

DIP financing

TES also secured $1.76 billion in bankruptcy financing from a group of banks including Citigroup Inc., Goldman Sachs Group Inc. and Royal Bank of Canada. This consists of a $1 billion term loan, a $300 million revolving credit facility and a $458 million letter of credit facility, the US company said in a statement.

Parent company Talen Energy Corp. and its crypto-mining unit have not filed for bankruptcy.

Talen, based in The Woodlands, Texas, listed both assets and debts of more than $10 billion in its Chapter 11 petition filed in Houston. A Chapter 11 filing allows a business to continue operating while it develops a creditor repayment plan. the Riverstone FundThe generator has faced years of struggles amid low energy prices, dividend payments to its sponsor and mounting pressure to become more environmentally friendly.

As part of its bankruptcy, Talen also filed a $900 million lawsuit. court case against its former owners, PPL Corp., claiming the company misappropriated money from a Talen subsidiary. The companies have been fighting over the transfer in court for several years.

power crisis

The company, which operates in multiple cities across Texas, was hit hard by the state freeze and power crisis in early 2021. Fall of the winter storm cost it about $90 million, according to S&P Global Ratings.

Talen entered 2022 largely without hedges, which helped it take advantage of rising electricity prices, but the company was squeezed by rising gas prices and struggled to find hedging counterparties because of its risky debt profile, people who know the subject before. Told Bloomberg.

The case is Talen Energy Supply, 22-90054United States Bankruptcy Court for the Southern District of Texas.

(Adds day one hearing time to fifth paragraph. A previous version of this story corrected the unit’s bankruptcy filing.)

–With the help of Caroline Gonzalez, Brian Eckhouse, Edouard Gismatullin and Nicole Bullock.

To contact the reporters on this story:
Allison McNeely in New York at [email protected];
St. Stephen’s Church in Wilmington, Delaware at [email protected]

To contact the editors responsible for this story:
Claire Boston at [email protected]

Dawn McCarty

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