EX-99.1 2 a12-22435_1ex99d1.htm EX-99.1

Exhibit 99.1

 

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

 

 

x

 

 

In re

:

 

 

 

:

 

Chapter 11

 

:

 

 

HOMER CITY FUNDING LLC,

:

 

 

 

:

 

Case No. 12-

 

:

 

 

Debtor.

:

 

 

 

x

 

 

 

DISCLOSURE STATEMENT FOR THE PLAN OF REORGANIZATION
OF HOMER CITY FUNDING LLC

PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE

 

RICHARDS, LAYTON & FINGER, P.A.

One Rodney Square

P.O. Box 551

Wilmington, Delaware  19899

Paul N. Heath

(302) 651-7700

 

ATTORNEYS FOR THE DEBTOR

AND DEBTOR IN POSSESSION

 

Dated:

 

 

 

 



 

To:                              Holders of Existing Bond Claims Against Homer City Funding LLC

 

We deliver to you herewith the attached disclosure statement (the “Disclosure Statement”), distributed pursuant to sections 1125(g) and 1126(b) of title 11 of the United States Code (the “Bankruptcy Code”) and Rule 3018 of the Federal Rules of Bankruptcy Procedure, and ballots so that, if you are eligible, you may vote to accept or reject the proposed chapter 11 plan of reorganization (the “Plan”) of Homer City Funding LLC (the “Debtor” and, after the effective date of the Plan, the “Reorganized Debtor”).  The Debtor is only soliciting the votes of “Accredited Investors,” as that term is defined in Regulation D of the Securities Act of 1933, as amended.  The Debtor intends to use those votes from Accredited Investors that are returned to its voting agent, Epiq Bankruptcy Solutions, LLC (the “Voting Agent”), by 5:00 p.m., prevailing Eastern Time, on [             ], 2012, to seek approval of the Plan in the chapter 11 reorganization case that the Debtor intends to commence shortly after such date.

 

The Plan is the product of negotiations between the Debtor and a group of holders of more than 66 2/3% of the outstanding principal amount of (i) the 8.137% Senior Secured Bonds issued by the Debtor in the original principal amount of $300 million, maturing in 2019 (the “Series A Bonds”), and (ii) the 8.734% Senior Secured Bonds issued by the Debtor in the original principal amount of $530 million, maturing in 2026 (the “Series B Bonds” and, together with the Series A Bonds, the “Existing Bonds”), who have agreed to vote to accept the Plan pursuant to a plan support agreement.

 

The Debtor funds payments on the Existing Bonds with payments it receives on certain notes (the “Lessor Notes”) issued in connection with a financing arrangement entered into in 2001, as further described in the Disclosure Statement.  The cash for these payments is generated by the operation of a coal-fired power plant in Homer City, Pennsylvania (the “Facility”).  The Facility is owned by eight owner lessors (the “Owner Lessors”), which lease the Facility to the operator of the Facility, EME Homer City Generation L.P. (“EME Homer City”).  The Owner Lessors use lease payments made by EME Homer City to the Owner Lessors to fund payments under Lessor Notes that were issued by the Owner Lessors and are owned by the Debtor, as further described in the Disclosure Statement.  The Lessor Notes have substantially similar payment terms as the Existing Bonds, and payments on the Lessor Notes are used by the Debtor to make payments on the Existing Bonds.

 

Low electricity prices are impairing the liquidity of EME Homer City and adversely affecting its ability to make the lease payments that support the Debtor’s obligations under the Existing Bonds.  EME Homer City stated in a Form 8-K, filed with the Securities and Exchange Commission on May 3, 2012, that “[a]bsent a working capital loan or other infusion of cash, Homer City is not expected to have sufficient cash flow to meet its operating expenses and other obligations either in the near term or during 2012, including the rent payment due on October 1, 2012.”  EME Homer City did not make this required lease rent payment on October 1, 2012, and as a result, both the Owner Lessors and the Debtor failed to make their respective payments under the Lessor Notes and the Existing Bonds that came due on October 1, 2012.  Further, anticipated environmental regulations are expected to require a substantial investment in constructing pollution control equipment for the Facility.  As a result, absent the restructuring described in the Disclosure Statement, it is unlikely that the Debtor will be able to bring current its payment obligations on the Existing Bonds and continue making payments on the Existing

 

2



 

Bonds as they come due.  The Existing Bonds and the organizational and contractual structure associated with the Facility must be restructured to address the Debtor’s immediate liquidity needs and to enable the new investment of funds that is expected to be necessary to construct pollution control equipment for the Facility.

 

The Debtor is seeking votes on the Plan, prior to the commencement of its chapter 11 case, from Accredited Investors that are holders of Existing Bonds.  By using this “prepackaged chapter 11 reorganization” method, the Debtor anticipates that the duration of its chapter 11 case will be significantly shortened, and the administration of the case will be simplified and less costly.

 

Please review the attached Disclosure Statement carefully for details about voting, recoveries, the proposed financial and organizational restructuring, the Reorganized Debtor’s projected financial performance and other relevant matters.  The Debtor has established the following date for determining who is entitled to vote on the Plan (the “Voting Record Date”) and the deadline for its Voting Agent to receive votes (the “Voting Deadline”):

 

VOTING RECORD DATE:

October 2, 2012

 

 

VOTING DEADLINE:

[                      ], 2012 at 5:00 p.m., Prevailing Eastern Time

 

 

 

Sincerely,

 

 

 

 

 

 

 

 

 

 

 

HOMER CITY FUNDING LLC

 

 

 

 

 

 

By:

WILMINGTON TRUST COMPANY, its Member

 

 

 

 

 

 

By:

 

 

 

Name:

[    ]

 

 

Title:

[   ]

 

 

 

3



 

THIS SOLICITATION OF VOTES IS BEING CONDUCTED TO OBTAIN SUFFICIENT ACCEPTANCES OF THE PLAN UPON THE FILING OF A VOLUNTARY REORGANIZATION CASE UNDER CHAPTER 11 OF THE BANKRUPTCY CODE.  BECAUSE THE CHAPTER 11 CASE HAS NOT YET BEEN COMMENCED, THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION WITHIN THE MEANING OF SECTION 1125(A) OF THE BANKRUPTCY CODE.  ALTHOUGH THE DEBTOR IS HEREBY SOLICITING VOTES IN RESPECT OF THE PLAN, AND THE DEBTOR INTENDS TO FILE THE CHAPTER 11 CASE WITH THE CONSENT OF THE EXISTING BOND INDENTURE TRUSTEE IF SUFFICIENT VOTES ARE RECEIVED IN RESPECT OF THE SOLICITATION, SUCH SOLICITATION AND THE DISSEMINATION OF THIS DISCLOSURE STATEMENT DOES NOT REQUIRE THE DEBTOR TO FILE THE CHAPTER 11 CASE IMMEDIATELY THEREAFTER OR AT ALL; NOR SHOULD SUCH A FILING BE VIEWED AS A NECESSARY SUBSEQUENT EVENT TO SUCH SOLICITATION.  UPON THE EXPECTED COMMENCEMENT OF THE CHAPTER 11 CASE, THE DEBTOR EXPECTS TO PROMPTLY SEEK ORDERS OF THE BANKRUPTCY COURT (I) APPROVING THE SOLICITATION OF VOTES AS BEING IN COMPLIANCE WITH SECTIONS 1125 AND 1126(B) OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 3018, AND (II) CONFIRMING THE PLAN.

 

DISCLOSURE STATEMENT, DATED OCTOBER [3], 2012

 

Solicitation of Votes on the
Prepackaged Plan of Reorganization of

 

HOMER CITY FUNDING LLC

 

from the holders of outstanding

 

8.137% SENIOR SECURED BONDS DUE 2019 OF HOMER CITY FUNDING LLC

CUSIP NO. 437410AA1

 

8.734% SENIOR SECURED BONDS DUE 2026 OF HOMER CITY FUNDING LLC

CUSIP NO. 437410AB9

 

THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN IS 5:00 P.M., PREVAILING EASTERN TIME,
ON [                  ], 2012, UNLESS EXTENDED BY THE DEBTOR

 



 

HOLDERS OF CLAIMS SHOULD NOT CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL, OR TAX ADVICE AND SHOULD CONSULT WITH THEIR OWN ADVISORS BEFORE CASTING A VOTE WITH RESPECT TO THE PLAN.

 

THE NEW SECURED BONDS (AS DEFINED IN THE PLAN) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR SIMILAR STATE SECURITIES OR “BLUE SKY” LAWS.  THE ISSUANCE OF SUCH SECURITIES UNDER THE PLAN IS BEING EFFECTED PURSUANT TO THE EXEMPTION UNDER SECTION 1145 OF THE BANKRUPTCY CODE.  THIS SOLICITATION IS BEING MADE ONLY TO THOSE CREDITORS WHO ARE “ACCREDITED INVESTORS,” AS DEFINED IN REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

 

THE NEW SECURED BONDS TO BE ISSUED ON THE EFFECTIVE DATE HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL, OR REGULATORY AUTHORITY, AND NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED ON ESTIMATES AND ASSUMPTIONS.  THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES.  FORWARD-LOOKING STATEMENTS ARE PROVIDED IN THIS DISCLOSURE STATEMENT PURSUANT TO THE SAFE HARBOR ESTABLISHED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES, ASSUMPTIONS, UNCERTAINTIES AND RISKS DESCRIBED HEREIN.

 

FURTHER, READERS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS HEREIN ARE BASED ON ASSUMPTIONS THAT ARE BELIEVED TO BE REASONABLE, BUT ARE SUBJECT TO A WIDE RANGE OF RISKS INCLUDING, BUT NOT LIMITED TO, RISKS ASSOCIATED WITH THE FOLLOWING:

 

·                  UNPREDICTABILITY OF THE FACILITY’S FUTURE FINANCIAL RESULTS AND LIQUIDITY, INCLUDING THE ABILITY OF THE REORGANIZED DEBTOR TO FINANCE OPERATIONS IN THE NORMAL COURSE;

 

·                  VARIOUS FACTORS THAT MAY AFFECT THE VALUE OF THE NEW SECURED BONDS TO BE ISSUED UNDER THE PLAN;

 

·                  THE REORGANIZED DEBTOR’S RELATIONSHIPS WITH AND PAYMENT TERMS PROVIDED BY TRADE CREDITORS PROVIDING GOODS AND SERVICES TO THE FACILITY;

 

2



 

·                  ADDITIONAL FINANCING REQUIREMENTS AFTER THE COMPLETION OF THE RESTRUCTURING;

 

·                  THE EFFECT OF COMPETITIVE SERVICES OR PRICING BY COMPETITORS OF THE FACILITY;

 

·                  THE SUCCESSFUL COMPLETION AND INSTALLATION OF NEW POLLUTION CONTROL EQUIPMENT THAT IS EXPECTED TO BE CENTRAL TO THE OPERATION OF THE FACILITY, INCLUDING SUCCESSFUL RESOLUTION OF PENDING AND FUTURE PERMITTING AND LITIGATION MATTERS;

 

·                  CHANGES TO THE COSTS OF OPERATING THE FACILITY;

 

·                  THE PROPOSED RESTRUCTURING AND COSTS ASSOCIATED THEREWITH;

 

·                  THE EFFECT OF PENDING AND FUTURE ENVIRONMENTAL LAWS AND REGULATIONS ON THE FACILITY;

 

·                  THE EFFECT OF CONDITIONS IN THE ENERGY GENERATION AND SALES INDUSTRY ON THE REORGANIZED DEBTOR AND ITS BUSINESS;

 

·                  THE CONFIRMATION AND CONSUMMATION OF THE PLAN; AND

 

·                  EACH OF THE OTHER RISKS IDENTIFIED IN THIS DISCLOSURE STATEMENT.

 

DUE TO THESE UNCERTAINTIES, READERS CANNOT BE ASSURED THAT ANY FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT.  THE DEBTOR IS UNDER NO OBLIGATION (AND EXPRESSLY DISCLAIMS ANY OBLIGATION) TO UPDATE OR ALTER ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, UNLESS INSTRUCTED TO DO SO BY THE BANKRUPTCY COURT.

 

THE DEBTOR BELIEVES THAT THE ONLY CREDITORS OF THE DEBTOR ARE THE HOLDERS OF THE EXISTING BONDS.  IF, HOWEVER, ANY HOLDERS OF UNSECURED CLAIMS EXIST, THEIR CLAIMS WILL NOT BE IMPAIRED BY THE PLAN, AND, AS A RESULT, THEIR RIGHT TO RECEIVE PAYMENT IN FULL ON ACCOUNT OF EXISTING OBLIGATIONS IS NOT ALTERED BY THE PLAN.

 

NO INDEPENDENT AUDITOR OR ACCOUNTANT HAS REVIEWED OR APPROVED THE FINANCIAL PROJECTIONS OR THE LIQUIDATION ANALYSIS HEREIN.

 

THE DEBTOR HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY REPRESENTATION, IN CONNECTION WITH THE PLAN AND THIS DISCLOSURE STATEMENT.

 

3



 

THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED.  THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE SUMMARIES IN THIS DISCLOSURE STATEMENT.

 

THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY FOR PURPOSES OF CONSIDERING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN OR OBJECT TO CONFIRMATION.  NOTHING IN THIS DISCLOSURE STATEMENT MAY BE USED BY ANY PARTY FOR ANY OTHER PURPOSE.

 

ALL EXHIBITS TO THIS DISCLOSURE STATEMENT ARE INCORPORATED INTO AND ARE A PART OF THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.

 

INTERNAL REVENUE SERVICE CIRCULAR 230 NOTICE:   TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICE CIRCULAR 230, HOLDERS OF CLAIMS AND EQUITY INTERESTS ARE HEREBY NOTIFIED AS FOLLOWS:   (I) ANY DISCUSSION OF FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS DISCLOSURE STATEMENT IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY HOLDERS OF CLAIMS OR EQUITY INTERESTS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THEM UNDER THE INTERNAL REVENUE CODE; (II) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING BY THE DEBTOR OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (III) HOLDERS OF CLAIMS AND EQUITY INTERESTS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

 

4



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

ARTICLE I.

 

INTRODUCTION

1

A.

Summary of the Plan

1

B.

Summary of Voting Procedures

4

ARTICLE II.

 

GENERAL INFORMATION

5

A.

The Debtor’s Business and Capital Structure

5

B.

The Organizational and Contractual Structure Concerning the Facility

5

C.

The Facility and Facility Site

6

D.

The Existing Bonds

7

 

1.

 

The Debt Service Reserve Letters of Credit

8

E.

Management of the Debtor

8

F.

Events Leading to the Commencement of the Debtor’s Chapter 11 Case and the Restructuring Transactions

8

 

1.

 

Events Leading to the Restructuring Transactions

8

 

2.

 

The Restructuring Transactions

10

ARTICLE III.

 

THE CHAPTER 11 CASE

21

A.

Professionals Retained in the Chapter 11 Case

21

 

1.

 

The Debtor’s Attorneys, Other Professionals, and Other Expenses

21

B.

Significant Events During the Chapter 11 Cases

22

 

1.

 

Claims Matters

22

 

2.

 

First Day Orders

22

 

3.

 

Confirmation Hearing

22

 

4.

 

Timetable for the Chapter 11 Case

22

ARTICLE IV.

 

THE PLAN OF REORGANIZATION

23

A.

Unclassified Claims and Expenses

23

 

1.

 

Administrative Expenses Generally

23

 

2.

 

Treatment of Administrative Expenses

24

 

3.

 

Priority Tax Claims

24

 

4.

 

Other Expenses of Administration

24

 

i



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

B.

Classified Claims

25

 

1.

 

Class 1 – Priority Non-Tax Claims

25

 

2.

 

Class 2 – Existing Bond Claims

25

 

3.

 

Class 3 – Other Claims

26

 

4.

 

Class 4 – Equity Interests

26

C.

Means of Implementation and Post-Effective Date Governance

26

 

1.

 

Effective Date Transactions

26

 

2.

 

Consents by the Debtor and Holders of Existing Bond Claims

28

 

3.

 

Issuance of New Secured Bonds Under the Plan

28

 

4.

 

Cancellation and Amendment of Existing Securities and Agreements

28

 

5.

 

Surrender of Existing Securities

29

 

6.

 

Entry into Working Capital Facility

29

 

7.

 

Issuance of New Limited Partnership Interests

29

 

8.

 

Corporate or Other Organizational Action

30

 

9.

 

Compromise of Controversies Under Rule 9019 of the Bankruptcy Code

31

D.

Provisions Governing Distributions

31

 

1.

 

Distributions to Holders of Claims as of the Effective Date

31

 

2.

 

Date of Distributions

31

 

3.

 

Sources of Cash for Plan Payments

31

 

4.

 

Disbursing Agent

31

 

5.

 

Rights and Powers of Disbursing Agent

31

 

6.

 

Expenses of the Disbursing Agent

32

 

7.

 

Delivery of Distributions

32

 

8.

 

Delivery of Distributions to Holders of Claims in Class 2 (Existing Bond Claims)

32

 

9.

 

Manner of Payment Under Plan

33

E.

Procedures for Treating Disputed Claims Under the Plan

33

 

ii



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

F.

Treatment of Executory Contracts and Unexpired Leases

33

G.

Conditions Precedent to the Effective Date of the Plan

34

 

1.

 

Occurrence of the Effective Date

34

 

2.

 

Waiver of Conditions Precedent

36

 

3.

 

Effect of Failure of Conditions to the Effective Date

36

 

4.

 

Reservation of Rights

37

 

5.

 

Substantial Consummation

37

H.

Effect of Confirmation

37

 

1.

 

Vesting of Assets

37

 

2.

 

Binding Effect

38

 

3.

 

Discharge of Homer City Funding LLC

38

 

4.

 

Exculpation

38

 

5.

 

Releases by the Debtor and Reorganized Debtor

39

 

6.

 

Releases by Holders of Claims

39

 

7.

 

Waiver of Statutory Limitations on Releases

40

 

8.

 

Waiver of Avoidance Actions

40

 

9.

 

Term of Injunctions or Stays

41

 

10.

 

Preservation of Claims

41

 

11.

 

Retention of Jurisdiction

41

I.

Miscellaneous

43

 

1.

 

Payment of Statutory Fees

43

 

2.

 

Filing of Additional Documents

43

 

3.

 

Schedules, Exhibits and Plan Supplement Incorporated

43

 

4.

 

Plan Amendment; Creditor Consents

44

 

5.

 

Effectuating Documents and Further Transactions

44

 

6.

 

Inconsistency

44

 

7.

 

Section 1125(e) of the Bankruptcy Code

44

 

8.

 

Compliance with Tax Requirements

45

 

9.

 

Section 1145 Exemption

45

 

iii



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

 

 

 

10.

 

Exemption from Transfer Taxes

45

 

11.

 

Request for Expedited Determination of Taxes

46

 

12.

 

Dissolution of any Statutory Committee

46

 

13.

 

Revocation, Withdrawal, or Non-Consummation of the Plan

46

 

14.

 

Severability Provisions in the Plan

46

 

15.

 

Governing Law

47

 

16.

 

Time

47

 

17.

 

No Admissions

47

 

18.

 

Notices

47

ARTICLE V.

 

POST-CONFIRMATION GOVERNANCE OF THE REORGANIZED DEBTOR

48

ARTICLE VI.

 

DESCRIPTION OF THE NEW SECURED BONDS

49

A.

Description of Principal, Maturity and Interest

49

B.

Description of Shared Provisions

51

ARTICLE VII.

 

EXEMPTION FROM SECURITIES ACT REGISTRATION

60

A.

The Solicitation

60

B.

Issuance and Resale of the New Secured Bonds Under the Plan

61

C.

Listing

61

D.

Legends

62

ARTICLE VIII.

 

THE VOTING AGENT

62

ARTICLE IX.

 

RISK FACTORS

63

A.

Certain Risks Relating to the Chapter 11 Case

63

B.

Certain Risk Factors Relating to the New Secured Bonds

66

C.

Certain Business Risk Factors

79

D.

Certain Risks Concerning Regulations and Permitting Requirements

84

ARTICLE X.

 

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

87

A.

Consequences to the Debtor

88

 

iv



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

B.

Consequences to Holders of Existing Bond Claims

88

C.

Exchanges of Existing Bond Claims Under the Plan

89

 

1.

 

Recapitalization Treatment

90

 

2.

 

Fully Taxable Exchange

91

 

3.

 

Character of Gain or Loss

92

 

4.

 

Payment of Accrued Interest

93

D.

Ownership and Disposition of New Secured Bonds

93

 

1.

 

OID and Issue Price

93

 

2.

 

Acquisition Premium

96

 

3.

 

Sale, Redemption or Repurchase

96

E.

Information Reporting and Backup Withholding

97

ARTICLE XI.

 

CONFIRMATION AND CONSUMMATION PROCEDURE

97

A.

Plan Support Agreement

97

B.

Voting Procedures and Requirements

97

 

1.

 

Voting Deadline

98

 

2.

 

Certain Voting Procedures

98

 

3.

 

Voting Record Date

99

 

4.

 

Voting Agent

99

 

5.

 

Parties Entitled to Vote

99

 

6.

 

Miscellaneous

101

 

7.

 

Fiduciaries and Other Representatives

102

 

8.

 

Agreements Upon Furnishing Ballots

103

 

9.

 

Changes of Vote

103

 

10.

 

Waivers of Defects, Irregularities, etc.

103

 

11.

 

Compliance with Law

104

C.

Confirmation of the Plan

104

 

1.

 

Requirements for Solicitations and Acceptances of the Plan

104

 

2.

 

The Confirmation Hearing

106

 

3.

 

Requirements for Confirmation of the Plan

106

 

v



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

 

 

 

4.

 

Acceptance

108

 

5.

 

Unfair Discrimination and Fair and Equitable Tests

108

 

6.

 

Feasibility

109

 

7.

 

Best Interests of Creditors Test

110

D.

Consummation

111

ARTICLE XII.

 

ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

112

A.

Sale Under Section 363 of the Bankruptcy Code

112

B.

Liquidation Under Chapter 7 or State Law

112

C.

Alternative Plan of Reorganization

113

ARTICLE XIII.

 

PROJECTIONS OF CERTAIN FINANCIAL INFORMATION FOR RESTRUCTURING

113

A.

Introduction and Reservations

113

B.

Projections

115

 

1.

 

Projected Consolidated Statement of Operations

116

 

2.

 

Projected Consolidated Balance Sheet

117

 

3.

 

Projected Consolidated Statement of Cash Flows

118

C.

Accounting Policies

118

D.

Summary of Significant Assumptions

118

 

1.

 

General Market Conditions

119

 

2.

 

Methodology

119

 

3.

 

Revenue and Operating Expenses

119

 

4.

 

Interest Expense

120

 

5.

 

Income Taxes

120

 

6.

 

Capital Expenditures

121

 

7.

 

Capital Structure

121

 

8.

 

Working Capital

121

 

9.

 

Partners’ Deficit/Equity

121

ARTICLE XIV.

 

LIQUIDATION ANALYSIS

122

A.

Introduction and Reservations

122

 

vi



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

B.

Hypothetical Liquidation Analysis

125

 

1.

 

Notes to Liquidation Analysis

126

ARTICLE XV.

 

CONCLUSION AND RECOMMENDATION

129

 

vii



 

EXHIBITS

 

Exhibit No.

 

Description

Exhibit “A”

 

Plan of Reorganization of Homer City Funding LLC

Exhibit “B”

 

Plan Support Agreement

Exhibit “C”

 

Diagram of Existing Facility Structure

 



 

ARTICLE I.

 

INTRODUCTION

 

The Debtor, Homer City Funding LLC, submits this Disclosure Statement in connection with (i) the solicitation (the “Solicitation”) from “Accredited Investors,” as that term is defined in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), of acceptances of the Plan, substantially in the form set forth in Exhibit “A” hereto, to be filed with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) and (ii) the hearing to consider confirmation of the Plan (the “Confirmation Hearing”), which will be scheduled by the Bankruptcy Court after the commencement of the Debtor’s Chapter 11 Case.

 

Unless otherwise defined herein, all capitalized terms contained in this Disclosure Statement shall have the meanings ascribed to them in the Plan.

 

The Plan is comprised of a prepackaged chapter 11 plan of reorganization for Homer City Funding LLC.  This Solicitation is being conducted at this time to obtain sufficient votes to enable the Plan to be confirmed by the Bankruptcy Court.  Please note that, to the extent any inconsistencies exist between this Disclosure Statement and the Plan, or any transaction document implementing the Plan, the Plan, or the applicable transaction document, shall govern.

 

The Debtor is commencing this Solicitation after extensive negotiations involving the Informal Bondholder Group, which comprises holders of over two-thirds in principal amount of the Existing Bonds.  The Informal Bondholder Group has agreed to support the financial restructuring provided for in the Plan and has agreed to vote to accept the Plan, subject to and in accordance with the terms of the Plan Support Agreement.

 

WHO IS ENTITLED TO VOTE:  All beneficial owners of Existing Bonds that are Accredited Investors as of the Voting Record Date are entitled to vote on the Plan.  Please see ARTICLE VII.A of this Disclosure Statement, titled “The Solicitation,” for a detailed description of what constitutes an Accredited Investor.

 

A.            Summary of the Plan

 

The following table summarizes the treatment and estimated recovery for creditors and holders of equity under the Plan who hold allowed Claims.  For a further explanation, please see ARTICLE IV of this Disclosure Statement, titled “The Plan of Reorganization,” and the text of the Plan itself, attached hereto as Exhibit “A”:

 

Class

 

Description

 

Impairment

 

Entitled 
to Vote

 

Estimated 
Recovery

 

1

 

Priority Non-Tax Claims

 

Unimpaired. Holders will receive payment in Cash equal to the allowed amount of such Priority Non-Tax Claim. The Debtor does not

 

No (deemed to

 

100

%

 



 

Class

 

Description

 

Impairment

 

Entitled 
to Vote

 

Estimated 
Recovery

 

 

 

 

 

believe that any Priority Non-Tax Claims exist.

 

accept)

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Existing Bond Claims

 

Impaired. On the Effective Date, each holder of an allowed Existing Bond Claim will receive from the Reorganized Debtor, in exchange for and in full satisfaction of all of such holder’s Existing Bond Claims, its pro rata share of New Secured Bonds having an aggregate principal amount equal to (i) $174 million for those certain 8.137% Senior Secured Bonds due 2019 and $465.976 million for those certain 8.734% Senior Secured Bonds due 2026 plus (ii) the amount of any accrued and unpaid interest that is payable on the Existing Bonds for the period commencing on April 1, 2012 and concluding on and inclusive of September 30, 2012, which interest will be calculated at the applicable non-default PIK Interest rate under the New Secured Bond Indenture. The New Secured Bonds will accrue interest for the interest period commencing on October 1, 2012 and concluding on and inclusive of March 31, 2013 at the non-default PIK Interest rate (which interest will be payable on the applicable interest payment date by issuing PIK Notes) or the non-default Cash Rate (which interest will be payable on the applicable interest payment date in cash) as elected by the Reorganized Debtor in its sole discretion on or prior to the Effective Date. Solely in the event the Effective Date does not occur prior to April 1, 2013, (a) the amount of any accrued and unpaid interest that is payable on the Existing Bonds for the period commencing on October 1, 2012 and concluding on and inclusive of March 31, 2013, which interest will be calculated at the applicable non-default PIK Interest rate under the New Secured Bond Indenture, will be added to the principal amount of the New Secured Bonds on and as of April 1, 2013, and (b) the New Secured Bonds will accrue interest for the interest period commencing on April 1, 2013 and concluding on and inclusive of September 30, 2013 at the non-default PIK Interest rate (which interest will be

 

Yes

 

100

%

 

2



Class

 

Description

 

Impairment

 

Entitled 
to Vote

 

Estimated 
Recovery

 

 

 

 

 

payable on the applicable interest payment date by issuing PIK Notes) or the non-default Cash Rate (which interest will be payable on the applicable interest payment date in cash) as elected by the Reorganized Debtor in its sole discretion on or prior to the Effective Date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Other Claims

 

Unimpaired. On the Effective Date, or as soon thereafter as is reasonably practicable, except to the extent that the holder of a Class 3 Claim agrees to less favorable treatment, each Other Claim shall be unimpaired within the meaning of section 1124 of the Bankruptcy Code. The Debtor does not believe that any Other Claims exist.

 

No (deemed to accept)

 

100

%

 

 

 

 

 

 

 

 

 

 

4

 

Equity Interests

 

Impaired. On the Effective Date, all existing Equity Interests will be canceled, and the holders of the Equity Interests shall not be entitled to, and shall not receive or retain, any property or interest in property on account of such Equity Interests.

 

No (deemed to reject)

 

0

%

 

The Debtor’s goal is to consummate a restructuring transaction under the Plan that will improve the financial health and future operational viability of the Facility, provide for a capital investment in necessary environmental emissions control technology for the Facility, transfer ownership of the Facility to the Reorganized Debtor, simplify the ownership and capital structure associated with the Facility, and improve liquidity by relieving the Reorganized Debtor of its obligation to make principal and cash interest payments on its bond debt through and including April 1, 2014.  Accordingly, pursuant to the Plan, on the Effective Date, a series of restructuring transactions will occur that will establish the Reorganized Debtor as the sole entity owning the Facility and certain real and personal property associated with the Facility.  Among other things, the Owner Lessors that currently own the Facility and the Debtor will merge into a new entity that will become the Reorganized Debtor.  In addition, certain interests in the Facility not currently owned by the Owner Lessors and held by EME Homer City, the current lessee of the Facility, will be transferred to the Reorganized Debtor, including EME Homer City’s leasehold interest in the Facility, its fee simple interest in the Facility site, and certain other rights and property used to operate the Facility, as more fully described in ARTICLE II.F.2.ii of this Disclosure Statement, titled “Transfer of Interest of Homer City to NewCo under the Master Transaction Agreement.”  The Reorganized Debtor will be jointly owned by subsidiaries of GE Capital and by MetLife, will issue New Secured Bonds in exchange for the Existing Bonds, and will enter into a new Working Capital Facility.  The Reorganized Debtor has also entered into an agreement with a third-party Operator for the operation and maintenance of the Facility.  As a

 

3



 

result of the Plan and the transactions contemplated by the Plan, the existing organizational and contractual structure associated with the Facility will be eliminated and the ownership and capital structure associated with the Facility will be simplified.

 

Where to Find Additional Information: For detailed projected financial information and financial estimates, see ARTICLE XIII of this Disclosure Statement, titled “Projections of Certain Financial Information for Restructuring.”  For further information regarding the historical financial performance of the Facility while under the management of EME Homer City, as well as further information about the Facility business and certain risks associated therewith, please consult the filings (the “SEC Filings”) made by EME Homer City with the Securities and Exchange Commission (the “SEC”), including its Form 10-K annual reports, Form 10-Q quarterly reports, and any Form 8-K current reports that have been filed since EME Homer City’s most recent Form 10-Q quarterly report.

 

You may obtain copies of the above-referenced SEC Filings by visiting the website of the Securities and Exchange Commission at http://www.sec.gov and performing a search under the “Filings & Forms (EDGAR)” link.

 

The Debtor’s legal advisor is Richards, Layton & Finger, P.A. (“Richards Layton”), and can be contacted at:

 

Richards, Layton & Finger, P.A.

One Rodney Square

P.O. Box 551

Wilmington, Delaware 19899

(302) 651-7700

Attn:  Paul N. Heath

 

B.            Summary of Voting Procedures

 

To be counted, your pre-validated Beneficial Owner Ballot or the Master Ballot of your nominee must be received, pursuant to the instructions in this Disclosure Statement, by the Debtor’s Voting Agent at the following address, before the Voting Deadline of 5:00 P.M. (Prevailing Eastern Time) on [                   ], 2012:

 

Epiq Bankruptcy Solutions, LLC

757 Third Avenue, Third Floor

New York, New York 10017

Telephone: (646) 282-2400

 

For detailed voting instructions, please see ARTICLE XI.B of this Disclosure Statement, titled “Voting Procedures and Requirements,” and the instructions on your Ballot.

 

IT IS IMPORTANT THAT THE HOLDERS OF CLAIMS IN CLASS 2 (EXISTING BOND CLAIMS) EXERCISE THEIR RIGHTS TO VOTE TO ACCEPT OR REJECT THE PLAN.

 

4



 

PURSUANT TO THE PLAN SUPPORT AGREEMENT, ALL OF THE MEMBERS OF THE INFORMAL BONDHOLDER GROUP ARE CONTRACTUALLY REQUIRED TO VOTE IN FAVOR OF THE PLAN.

 

ARTICLE II.

 

GENERAL INFORMATION

 

A.            The Debtor’s Business and Capital Structure

 

The Debtor is a Delaware limited liability company and special purpose entity that was formed to issue the Existing Bonds, which are secured by certain secured lease obligation notes, known as the Lessor Notes, pursuant to the 2001 Transaction described below.  The Lessor Notes were issued by the Owner Lessors to the Debtor.  The Debtor uses payments in respect of the Lessor Notes to pay the interest and principal due on the Existing Bonds.  The Debtor’s sole purpose is to receive debt service payments on the Lessor Notes, which have the same interest rates and amortization schedules as the Existing Bonds, and to use these payments to make debt service payments on the Existing Bonds.  The Debtor is not affiliated with any other party to the organizational and contractual structure of the Facility and is not currently permitted to engage in activities unrelated to servicing the Existing Bonds.

 

B.            The Organizational and Contractual Structure Concerning the Facility

 

The Existing Bonds were issued as part of a transaction consummated in December of 2001, referred to in this Disclosure Statement as the “2001 Transaction,” which also involved (i) the purchase of the Facility by the Owner Lessors from EME Homer City, (ii) the leasing of the Facility by the Owner Lessors back to EME Homer City pursuant to eight substantially identical facility leases between EME Homer City and each of the Owner Lessors, and (iii) the issuance of the Lessor Notes by the Owner Lessors to the Debtor.

 

The Owner Lessors are eight Delaware limited liability companies, which collectively hold 100% of the undivided interest in the Facility.  Seven of the Owner Lessors are beneficially owned by a subsidiary of GE Capital, representing a 90% indirect ownership interest in the Facility, and one of the Owner Lessors is owned by MetLife, representing a 10% indirect ownership interest in the Facility.  Because there are eight Owner Lessors, the 2001 Transaction was structured as eight transactions with separate, but commercially identical, documentation for each Owner Lessor.

 

Under the organizational and contractual structure concerning the Facility, EME Homer City, an indirect subsidiary of Edison Mission Holdings Co., operates the Facility and makes lease payments to the Owner Lessors that fund both the obligations of the Owner Lessors on the Lessor Notes and EME Homer City’s obligation to pay “equity rent” to the Owner Lessors.  Therefore, EME Homer City indirectly provides all debt service payments on the Existing Bonds, although it is not directly obligated on the Existing Bonds, and the ability to continue to make payments on the Existing Bonds is dependent upon revenues generated by the Facility.  Please see Exhibit “C” to this Disclosure Statement for a diagram setting forth the current primary contractual and structural relationships relating to, or established under, the existing Facility structure.

 

5



 

When the 2001 Transaction was consummated in December of 2001, Edison Mission Holdings Co. had previously issued 8.137% Senior Secured Bonds due 2019 and 8.734% Senior Secured Bonds due 2026, which were guaranteed by EME Homer City and secured directly by, among other things, the Facility (the “Holdings Bonds”).  As part of a series of steps that took place pursuant to the 2001 Transaction, and in order to fund a portion of the purchase price, the Owner Lessors agreed to assume, on a several and non-recourse basis, a pro rata portion of outstanding obligations under the Holdings Bonds.  Such obligations of each Owner Lessor were then assumed by the Debtor and, as consideration for the assumption of such obligations by the Debtor, each Owner Lessor issued Lessor Notes in favor of the Debtor in the same amount and on the same or similar economic terms as the obligations on the outstanding bonds assumed by the Debtor.  As part of the 2001 Transaction, EME Homer City replaced the Holdings Bonds with the Existing Bonds pursuant to a successful consent solicitation of holders of the Holdings Bonds that launched on November 21, 2001.  Following the closing of the 2001 Transaction, the Lessor Notes and the following Existing Bonds were outstanding:  (i) $300 million aggregate principal amount of 8.137% Senior Secured Bonds due 2019 and (ii) $530 million aggregate principal amount of 8.734% Senior Secured Bonds due 2026.

 

In conjunction with the 2001 Transaction, GE Capital made an approximately $798 million equity contribution to the Owner Lessors, which was applied toward the purchase price of the Facility.  The aggregate purchase price paid by the Owner Lessors for the interests they purchased was approximately $1.6 billion, with the balance of the purchase price satisfied through the agreement of the Owner Lessors to assume all obligations under the Holdings Bonds through issuance of the Lessor Notes.  Subsequent to the consummation of the 2001 Transaction, on September 29, 2005, MetLife purchased and took assignment from GE Capital of its interest in Homer City OL6 LLC, one of the eight Owner Lessors, representing a 10% indirect ownership interest in the Facility.

 

Certain of the Owner Lessors’ rights with respect to the portion of the rent paid to the Owner Lessors, including the right of payment, are subordinate to payments due and rights with respect to the portion of lease rent used to pay the Lessor Notes and, in turn, the Existing Bonds.  In addition, payment of lease rent to the Owner Lessors under each Facility lease is subject to the satisfaction of a coverage ratio test and other requirements.  EME Homer City failed to pay the Owner Lessors their $65 million equity rent payment on April 1, 2012, which remains outstanding and unpaid.

 

C.            The Facility and Facility Site

 

The Facility includes three coal-fired electric generating units and related facilities located in Indiana County, Pennsylvania, approximately 45 miles from Pittsburgh in the PJM Interconnection, LLC (“PJM”) west hub market, with a nameplate capacity of 1,884 megawatts.  It is in proximity to major metropolitan cities including Philadelphia, Washington, D.C. and New York City.  The Facility benefits from direct transmission access to both PJM and the New York Independent System Operator (“NYISO”) through high voltage lines that interconnect through a switchyard located on the Facility site.  Subject to certain restrictions, the Facility’s transmission capabilities provide the option to sell energy, capacity, and ancillary services into either PJM or NYISO, which regional transmission organizations coordinate the transmission of electricity in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland,

 

6



 

Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia.  Edison Mission Marketing & Trading, Inc. (“EMMT”), an Affiliate of EME Homer City, sells energy and capacity from the Facility under established terms, including price, duration, and quantity, arranged with customers through a combination of bilateral agreements (resulting from negotiations or from auctions), forward energy sales and spot market sales.

 

The land that comprises the Facility site was not transferred to the Owner Lessors as part of the 2001 Transaction.  EME Homer City leases the Facility site to the Owner Lessors, which in turn sublease the land back to EME Homer City.  As part of the restructuring transactions contemplated by the Plan, EME Homer City will transfer all such land to the Reorganized Debtor, subject to certain exceptions in the Master Transaction Agreement (as defined below in ARTICLE II.F.2.ii of this Disclosure Statement, titled “Transfer of Interest of Homer City to NewCo under the Master Transaction Agreement”).

 

D.            The Existing Bonds

 

The Existing Bonds were issued pursuant to the Existing Bond Indenture and are divided into two series, with one series, the 8.137% Senior Secured Bonds issued in the original principal amount of $300 million, maturing in 2019 (the “Series A Bonds”), and the other series, the 8.734% Senior Secured Bonds issued in the original principal amount of $530 million, maturing in 2026 (the “Series B Bonds”).  Although the series have different interest rates and maturity dates, the Existing Bonds vote and/or consent as a single class for all purposes under the Existing Bond Indenture.  As of June 30, 2012, there were $174 million in aggregate principal amount of Series A Bonds outstanding and $465.976 million in aggregate principal amount of Series B Bonds outstanding.  The Existing Bonds are held and traded publicly by a number of different holders, including a subsidiary of GE Capital, which currently holds, in the aggregate, approximately $103.02 million in principal amount, or approximately 16% in principal amount, of the Existing Bonds.

 

The Existing Bonds are secured by the Lessor Notes and the Debtor’s rights in connection with the Lessor Notes, including the proceeds of the Lessor Notes.  The Lessor Notes, in turn, are secured by a pledge of, among other things, the following:

 

·                  the Owner Lessors’ interests in the Facility;

 

·                  the Owner Lessors’ rights under their facility leases, their facility site leases, and their facility site subleases with EME Homer City; and

 

·                  a debt service reserve account or any letters of credit issued for the account of the Owner Lessors.

 

Accordingly, the Existing Bonds are indirectly secured by the Facility and the Owner Lessors’ rights against EME Homer City under the agreements and documents concerning the 2001 Transaction, including the Facility leases.

 

7



 

1.                   The Debt Service Reserve Letters of Credit

 

As noted above, the Existing Bonds are indirectly secured by, among other things, letters of credit issued for the account of the Owner Lessors to secure payment of the Lessor Notes.  The Lease Indentures require that each Owner Lessor establish a debt service reserve account and maintain a balance therein of 100% of the projected debt service on the Lessor Notes for the succeeding six-month period, or obtain a letter of credit issued by a bank or trust company in that same amount.

 

On April 1, 2005, Union Bank of California, N.A. (“Union Bank”) issued letters of credit for the account of the Owner Lessors (collectively, and as amended, the “Debt Service Reserve Letters of Credit”), which are governed by the Debt Service Letters of Credit and Reimbursement Agreements.  The Debt Service Reserve Letters of Credit are issued in an amount that approximately corresponds with each payment due under the Lessor Notes.  Under the Plan, the Debt Service Reserve Letters of Credit will be terminated and canceled, as more fully described in ARTICLE IV.C.1 of this Disclosure Statement, titled “Effective Date Transactions.”

 

E.                                                  Management of the Debtor

 

Pursuant to the Amended and Restated Limited Liability Company Agreement of Homer City Funding LLC, made as of December 7, 2001 (the “Debtor’s LLC Agreement”), Wilmington Trust Company, as sole member of the Debtor (the “Member”), has exclusive authority to manage the Debtor.  For certain material actions, however, including authorizing the commencement of the Chapter 11 Case for the Debtor, the Member must obtain the consent of the Existing Bond Indenture Trustee.

 

F.                                                  Events Leading to the Commencement of the Debtor’s Chapter 11 Case and the Restructuring Transactions

 

1.                   Events Leading to the Restructuring Transactions

 

i.                                          Changes in Environmental Regulation

 

The Facility, and EME Homer City in its capacity as operator of the Facility, are subject to extensive federal, state, and local regulation and laws in connection with the operation of the Facility and the use and sale of electric energy, capacity, and related products, including ancillary services, from the Facility.  These legislative and regulatory activities by federal, state, and local authorities impose numerous restrictions and requirements with respect to the operation of the Facility and affect the timing, cost, design, and construction of capital improvements to the Facility, as well as the cost of mitigating the environmental impacts of past operations, and have from time to time involved EME Homer City and the Owner Lessors in litigation.  For a more detailed discussion of the environmental rules and regulations that affect the operation of the Facility, please consult EME Homer City’s Form 10-K for the year ended December 31, 2011, filed with the SEC on March 28, 2012.

 

One area in which the Facility is subject to governmental regulation is the Facility’s emission of nitrogen oxide (“NOx”) and sulfur dioxide (“SO2”), as well as mercury,

 

8



 

particulate matter and various other substances.  The Environmental Protection Agency (the “EPA”) currently regulates the Facility’s NOx and SO2 emissions under the Clean Air Interstate Rule (“CAIR”), with which the Facility is in compliance.  On July 6, 2011, however, the EPA adopted the Cross-State Air Pollution Rule (“CSAPR”) to replace CAIR and, on December 21, 2011, the EPA announced standards to limit mercury, acid gases and other substances from power plants (“MATS”).  On August 21, 2012, the United States Court of Appeals for the District of Columbia vacated CSAPR.  In the interim, CAIR remains in effect and the Facility has CAIR emissions allowances.

 

Compliance with MATS and, potentially, any more stringent rule that replaces CAIR, requires significant capital improvements to the Facility through the installation of flue-gas desulfurization retrofit scrubber systems (“FGDs”) to Units 1 and 2 of the Facility.  Construction of the FGDs commenced during the second quarter of 2012 to meet the anticipated regulatory deadlines under CSAPR prior to its vacatur.  The cost of construction and installation of the FGDs is currently estimated to be approximately $700—$750 million.  EME Homer City does not have sufficient capital and does not expect to generate sufficient funds from operations to fund installation of the FGDs.  Moreover, the agreements entered into pursuant to the 2001 Transaction limit EME Homer City’s ability to incur debt.  As a result, installation of the FGDs, and in turn the future viability of the Facility, is dependent on funding from other parties.

 

As discussed in ARTICLE IX.D of this Disclosure Statement, titled “Certain Risks Concerning Regulations and Permitting Requirements,” the Pennsylvania Department of Environmental Protection (“PADEP”) issued a plan approval (the “Plan Approval”) authorizing construction of the FGDs in April 2012, and Earthjustice, an environmental nonprofit law firm, on behalf of the Sierra Club, has appealed the issuance of the PADEP approval to the Pennsylvania Environmental Hearing Board.  On September 6, 2012, the Sierra Club filed a petition with the administrator of the EPA to object to the Proposed Title V Permit for the Facility, which was issued on May 25, 2012 by PADEP.

 

ii.                                                 Attempted Equity Raise

 

During the summer and fall of 2011, EME Homer City attempted to raise capital to fund construction of the FGDs.  It proposed a transaction whereby $300 million in additional debt would be issued under the documents governing the current organizational and contractual structure of the Facility.  Additional funds were to be raised from a new investor that would acquire up to 100% of the equity interests in an entity to which EME Homer City would assign its rights and obligations under the current documents governing the organizational and contractual structure of the Facility.  EME Homer City was unable to find an investor willing to engage in the proposed transaction or negotiate a similar transaction on acceptable terms.

 

iii.                                              Reduction in Energy Prices

 

In the fourth quarter of 2011 and continuing into 2012, the market for energy experienced depressed pricing as a result of, among other things, changes in demand for power during the economic slowdown, technological developments permitting the exploitation of natural gas shale reserves resulting in lower natural gas prices, and increased use of demand response technology.  The impact of the reduction in energy prices on EME Homer City was

 

9



 

compounded by the fact that EME Homer City operates without long-term power purchase agreements and therefore is regularly subject to market forces that cause significant and unpredictable price fluctuations over relatively short periods of time.  As a result, EME Homer City faced financial pressure to generate sufficient cash flows to meet its obligations, including the Facility lease payments to the Owner Lessors, and in fact failed to make the portion of the Facility rent payment that satisfies EME Homer City’s obligation to pay equity rent to the Owner Lessors on April 1, 2012, which remains unpaid.  Further, EME Homer City disclosed in its Form 8-K, filed with the SEC on May 3, 2012, that “[a]bsent a working capital loan or other infusion of cash, Homer City is not expected to have sufficient cash flow to meet its operating expenses and other obligations either in the near term or during 2012, including the rent payment due on October 1, 2012.”  EME Homer City also attached financial projections to the Form 8-K, supporting its inability to make its Facility lease rent payment due on October 1, 2012.  EME Homer City failed to make this October 1, 2012 Facility lease payment, which remains unpaid.

 

EME Homer City’s financial condition negatively affects the Owner Lessors’ ability to make debt service payments on the Lessor Notes because the Owner Lessors fund the Lessor Note payments through the receipt of Facility lease rent from EME Homer City.  EME Homer City’s inability to meet its Facility lease obligations also negatively affects the ability of the Debtor to make debt service payments on the Existing Bonds because the Debtor funds the Existing Bond payments through receipt of payments from the Owner Lessors on the Lessor Notes.  As a result of EME Homer City’s failure to make its Facility lease payment on October 1, 2012, the Owner Lessors failed to make their October 1, 2012 payment on the Lessor Notes.  In turn, the Owner Lessors’ failure to make the October 1, 2012 Lessor Notes payment caused the Debtor to fail to make its October 1, 2012 payment on the Existing Bonds.  These amounts remain unpaid.

 

2.                   The Restructuring Transactions

 

i.                 Entry into the Implementation Agreement, the EPC Contract, and Negotiations with Holders of the Existing Bonds

 

Following the failure of the equity raise, EME Homer City and GE Capital began exploring ways to transfer EME Homer City’s interest in the Facility and related property, as well as certain liabilities, to a new entity controlled by GE Capital, in exchange for releasing EME Homer City from its obligations under its lease of the Facility and under other documents related to the 2001 Transaction.  On March 29, 2012, EME Homer City and GE Capital entered into that certain Implementation Agreement (the “Implementation Agreement”), pursuant to which EME Homer City agreed to enter into a transaction to transfer certain of its assets (including its leasehold interest in the Facility and its ownership interest in the Facility site) and certain liabilities to an assignee designated by GE Capital, in exchange for GE Capital agreeing to enter into, or to cause one of its Affiliates to enter into, the EPC Contract, and related agreements, for maintenance of the Facility and construction of FGDs for the Facility.(1)  Around the same time, GE Capital began negotiations with the Informal Bondholder Group concerning

 


(1) A copy of the Implementation Agreement is attached as Exhibit 10.1 to EME Homer City’s Form 10-Q quarterly report, filed with the SEC on May 2, 2012.

 

10



 

the restructuring of the Existing Bonds and the organizational and contractual arrangement concerning the Facility.  On April 2, 2012, EFS Homer City, LLC (“EFSHC”), an Affiliate of GE Capital, entered into the EPC Contract.  On May 3, 2012, GE Capital and the Informal Bondholder Group agreed upon, and EME Homer City filed with the SEC, a nonbinding term sheet governing a restructuring of the Existing Bonds that would take place pursuant to the Plan and in conjunction with the transaction contemplated by the Implementation Agreement.  Subsequently, GE Capital and the Informal Bondholder Group proceeded to negotiate, among other things, the form of the New Secured Bond Indenture, the Plan Support Agreement, and the Plan.

 

Construction of the FGDs and related improvements to the Facility has already begun pursuant to the EPC Contract, the BOP Agreements (as defined below), and other purchase orders and agreements.  Entry into the EPC Contract and assumption and funding of the BOP Agreements before consummation of the restructuring contemplated by the Plan was necessary so that construction could be completed before the occurrence of then-anticipated regulatory deadlines.  EFSHC intends to continue to perform under the EPC Contract to ensure the construction of the FGDs is completed.  Legal title to the work performed under the EPC Contract will pass to EFSHC on a periodic basis and such work will secure the New Secured Bonds.  EFSHC will contribute such portion of such work to which it has legal title to the Reorganized Debtor on the Effective Date and, thereafter, on a periodic basis.  As contemplated by and permitted under the Master Transaction Agreement (as defined below), it is expected that Units 1 and 2 of the Facility will not be operating during limited periods in the construction of the FGDs, including a multiple-week period in late 2013 and early 2014, although one of Units 1 and 2 is expected to be operational at any given time during this period.  The completion schedule under the EPC Contract, which is set forth on Schedule 4.04(f)(ii) of the New Secured Bond Indenture, currently contemplates that the construction of the FGDs will be completed in August 2014.   However, such completion date may be extended, subject to applicable permitting requirements and receipt of required consents.   There can be no certainty or assurance that the FGDs will be completed by the scheduled completion date or any extension thereof, that the contractor under the EPC Contract and the contractors working under the BOP Agreements and other ancillary agreements will in fact complete construction of the FGDs as contemplated under the EPC Contract, or that the FGDs will be operational before the occurrence of applicable anticipated regulatory deadlines.  Moreover, the terms of the EPC Contract permit EFSHC to terminate or suspend the EPC Contract under certain conditions.

 

ii.                                                 Transfer of Interest of Homer City to NewCo under the Master Transaction Agreement

 

Pursuant to the Implementation Agreement, EME Homer City and NewCo (as defined below in ARTICLE II.F.2.vi of this Disclosure Statement, titled “Permitting and Regulatory Approvals and the Formation of NewCo”) have entered into that certain master transaction agreement (the “Master Transaction Agreement”), a copy of which is attached to the Plan as Exhibit 1.1.56.(2)  Pursuant to the transactions contemplated by the Plan, all of the Owner

 


(2)  The description herein is qualified in its entirety by the terms of the Master Transaction Agreement, which control in the event of any inconsistency.  Capitalized terms used but not

 

11



 

Lessors and the Debtor will merge into NewCo, with NewCo being the sole surviving entity, successor to the Debtor, and the Reorganized Debtor.  Accordingly, references to the “Reorganized Debtor” include references to NewCo from and after the Effective Date.

 

Under the Master Transaction Agreement, EME Homer City will transfer to the Reorganized Debtor its leasehold interest in the Facility, its fee simple interest in the Facility site, and certain other rights and property used to operate the Facility—including the personal property of EME Homer City at the Facility, all inventories and emission allowances relating to the operation of the Facility, certain cash and cash equivalents and notes receivable (trade or otherwise), excluding the intercompany balances and cash equal to the amount of the EMMT Pre-Pay, all agreements and contracts relating to the operation of the Facility and construction of the FGDs, including certain ancillary agreements, known as the “BOP Agreements,” that support construction of the FGDs and maintenance of the Facility, Argo Bond Cash, Safeco Bond Cash and Post-Closing Cash Assets, all transferable permits, all unutilized emission reduction credits generated at the Facility, all unexpired and transferable warranties and guarantees from third parties with respect to any item of property transferred, certain intellectual property, substation equipment, the right to certain tax claims against third parties, all beneficial right, title and interest in and to the EME Homer City transmission and other property rights under that certain Interconnection Agreement, by and among  the Pennsylvania Electric Company (“Penelec”), New York State Electric & Gas Corporation (“NYSEG”) and Mission Energy Westside, Inc. (as assigned by Mission Energy Westside, Inc. to EME Homer City), dated as of August 1, 1998, as amended (the “Interconnection Agreement”) and all rights under any transactions which provide for the sale of commitment of “capacity” which had not been fully performed as of April 13, 2012 or which continue after the Closing.  In addition, EME Homer City must use commercially reasonable efforts to facilitate the transfer to the Reorganized Debtor of all material assets not owned by it but used in the ordinary course in the operation of the Facility.  Further, at the closing of the Master Transaction Agreement, certain affiliates of EME Homer City will transfer and convey to the Reorganized Debtor certain parcels of real property and certain assets, including emissions allowances, held by EMMT.

 

Under the Master Transaction Agreement, the Reorganized Debtor also will assume certain liabilities relating to the transferred assets, including, among other things, liabilities arising under the transferred agreements and transferable permits, trade payables relating to the operation of the Facility, certain liabilities arising on or after the closing relating to transferred employees, certain liabilities relating to environmental matters, certain taxes (other than income taxes) on the ownership and operation of the transferred assets in taxable periods ending prior to, on or after the closing under the Master Transaction Agreement that arise out of or relate to the ownership, operation or use of the transferred assets after the closing, and liabilities arising under any working capital loans provided by GE Capital to EME Homer City or under a letter of credit reimbursement agreement.

 

The closing under the Master Transaction Agreement is expected to occur simultaneously with the Effective Date of the Plan and is a condition to the occurrence of the

 


defined in this subsection, or otherwise defined in this Disclosure Statement, shall have the meanings ascribed to them in the Master Transaction Agreement.

 

12



 

Effective Date of the Plan.  As a result, the Effective Date of the Plan will not occur until the conditions to closing under the Master Transaction Agreement are satisfied (other than the Master Transaction Agreement closing condition relating to the occurrence of the Effective Date).  The obligations of both EME Homer City and the Reorganized Debtor to effect the transactions contemplated by the Master Transaction Agreement are conditioned upon satisfaction or waiver of certain mutual conditions, which are set forth in section 7.1 of the Master Transaction Agreement, including the following:

 

·                  the receipt of all regulatory approvals, including Federal Energy Regulatory Commission (“FERC”) approvals, certain authorizations from PJM and NYISO, and the transfer or reissuance of certain critical permits and licenses for the Facility;

 

·                  the absence of any statute, rule or regulation enacted by any governmental authority and the absence of any injunction, order or decree issued by any court that restrains, enjoins, prevents or prohibits the consummation of the transactions contemplated by the Master Transaction Agreement;

 

·                  at the election of the Reorganized Debtor, either (i) the receipt of certain material third party consents, waivers and amendments required under the Operative Documents to implement the transactions contemplated by the Master Transaction Agreement and to release EME Homer City and its Affiliates or (ii) in lieu thereof, the execution and delivery of mutually agreeable legally enforceable indemnification arrangements in favor of EME Homer City in respect of the absence of such consents, waivers and amendments;

 

·                  at the election of the Reorganized Debtor, either (i) the receipt of all consents and approvals required to assign the Interconnection Agreement from EME Homer City to the Reorganized Debtor, or (ii) execution by the Reorganized Debtor of an agreement pursuant to which Penelec and NYSEG agree to provide the Facility with interconnection service to certain of their respective transmission facilities;

 

·                  the request and instruction from more than two-thirds of holders of Existing Bonds to the Existing Bond Indenture Trustee to give such consents and instructions as are necessary to the Security Agent and the Lease Indenture Trustee under the Lease Indentures to permit (i) consummation of the transactions set forth in the Master Transaction Agreement and (ii) release of all liabilities and obligations of EME Homer City and its Affiliates under the documents that govern the organizational and contractual structure concerning the Facility, which consent and instruction may be provided for in the Plan; and

 

·                  at the election of the Reorganized Debtor, either (i) the receipt of all consents and approvals required for the assignment to the Reorganized Debtor of an existing transmission-related agreement with NYSEG, or (ii) execution by the Reorganized Debtor of an agreement pursuant to which NYSEG agrees to provide the Reorganized Debtor with certain transmission related entitlements covered by such existing agreement.

 

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The obligations of the Reorganized Debtor to effect the transactions contemplated by the Master Transaction Agreement are conditioned upon satisfaction or waiver of certain conditions, which are set forth in section 7.2 of the Master Transaction Agreement.  These include the following:

 

·                  no circumstance, condition, change or event shall have occurred since the date of the Master Transaction Agreement and be continuing that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect (defined in the Master Transaction Agreement to mean a material adverse effect on the condition, business or results of operations of the Facility and the transferred assets, taken as a whole, subject to certain exceptions);

 

·                  the representations and warranties of EME Homer City in the Master Transaction Agreement shall be true and correct on the closing date, except where the failure to be true and correct would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

·                  EME Homer City shall have complied in all material respects with all covenants and agreements required under the Master Transaction Agreement to be performed or complied with by it on or prior to the Closing Date;

 

·                  the absence of any legal proceeding by any third party that would reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Reorganized Debtor or any of its affiliates from and after the Closing;

 

·                  the parties agreeing upon or entering into mutually acceptable arrangements with respect to the IBEW Collective Bargaining Agreement (as defined below);

 

·                  the Reorganized Debtor entering into an operations and maintenance agreement with a third party under certain conditions;

 

·                  the absence of actual or threatened FERC proceedings challenging the Facility’s interconnection or access to the PJM or NYISO transmission systems;

 

·                  the occurrence of the Effective Date under the Plan; and

 

·                  the effectiveness of notices of cancellation and/or termination of certain tariffs and rate schedules of EME Homer City with FERC.

 

The obligations of EME Homer City to effect the transactions contemplated by the Master Transaction Agreement are conditioned upon satisfaction or waiver of certain conditions, which are set forth in section 7.3 of the Master Transaction Agreement and include the following:

 

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·                  the representations and warranties of the Reorganized Debtor in the Master Transaction Agreement shall be true and correct on the closing date, except where the failure to be true and correct would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Reorganized Debtor’s ability to perform its obligations under the Master Transaction Agreement and consummate the transactions contemplated thereby;

 

·                  the Reorganized Debtor shall have complied in all material respects with all covenants and agreements required under the Master Transaction Agreement to be performed or complied with by it on or prior to the closing date, provided that the Reorganized Debtor shall have performed and complied with certain Plan-related covenants contained in the Master Transaction Agreement in all respects; and

 

·                  the parties shall have agreed upon or entered into mutually acceptable arrangements with respect to the IBEW Collective Bargaining Agreement.

 

iii.                                    Other Pertinent Agreements and Transactions Ancillary or Related to the Transactions Contemplated under the Master Transaction Agreement

 

a.               Transition Services Agreement

 

The Master Transaction Agreement contemplates that EME Homer City and the Reorganized Debtor will, at the closing of the transactions contemplated by the Master Transaction Agreement, execute an agreement under which EME Homer City will provide certain transitional services for the operation of the Facility for a specified period following the closing of the Master Transaction Agreement (the “Transition Services Agreement”).  The terms and conditions of the Transition Services Agreement have not yet been negotiated.

 

b.              Operations and Maintenance Agreement

 

The Master Transaction Agreement contemplates that the Reorganized Debtor may retain a third-party Operator for the management, maintenance and operation of the Facility and that, if the Reorganized Debtor so retains an Operator, it is a condition to the closing of the Master Transaction Agreement that the Reorganized Debtor execute an agreement with the Operator to govern the maintenance and operation of the Facility following the closing (the “Operations and Maintenance Agreement”).  Following an arm’s length negotiation, NewCo executed an Operations and Maintenance Agreement on September 21, 2012, with NRG Homer City Services LLC, a subsidiary of NRG Energy, Inc., a nationally-recognized wholesale power generation company, to take over operation of the Facility after the closing of the Master Transaction Agreement.

 

c.               Agreements to Facilitate Power Sales and Marketing

 

EME Homer City has entered into certain arrangements with EMMT pursuant to which EMMT sells energy and capacity from the Facility into the wholesale market and provides scheduling and other related services.  Upon the closing of the Master Transaction Agreement, the Reorganized Debtor and EMMT will enter into a certain assignment agreement pursuant to

 

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which EMMT will assign to the Reorganized Debtor, among other things, certain of EMMT’s rights and obligations in connection with these arrangements.  Pursuant to the assignment, the Reorganized Debtor will honor the day-ahead trades entered into by EMMT on behalf of EME Homer City in the ordinary course of business and will assume such trades after the closing of the Master Transaction Agreement.  It is expected that the Reorganized Debtor, after assuming control of the Facility, will contract with EMMT to perform certain of the services it performed for EME Homer City, on terms to be mutually agreed upon, although the Reorganized Debtor may choose to contract with a third party to perform these services.

 

Pursuant to the Master Transaction Agreement, the Reorganized Debtor will take assignment of all rights under any transactions providing for the sale of capacity which had not been fully performed as of April 13, 2012 or which continue after the closing of the Master Transaction Agreement, which transactions are set forth on Schedule 2.1(r) to the Master Transaction Agreement.

 

iv.                                             Other Pertinent Aspects of the Business to be Acquired by the Reorganized Debtor

 

a.               Employee Matters

 

As of December 31, 2011, EME Homer City employed 252 employees.  Approximately 179 of these employees are covered by a collective bargaining agreement (the “IBEW Collective Bargaining Agreement”) that governs wages, benefits, and working conditions.  The collective bargaining agreement is set to expire on its own terms on December 31, 2012.  The Reorganized Debtor has also entered into the Operations and Maintenance Agreement with an Operator which will (A) provide EME Homer City with the names of those EME Homer City (i) union employees within 20 days after the execution of the Operations and Maintenance Agreement and (ii) non-union employees within 30 days after the execution of the Operations and Maintenance Agreement, to whom it will offer employment effective on the date of closing of the Master Transaction Agreement and (B) agree to recognize Local 459 of the International Brotherhood of Electrical Workers as the collective bargaining agent for those EME Homer City union employees who become employed by the Operator.

 

v.                                                The Plan Support Agreement

 

On October [3], 2012, GE Capital, MetLife, EFS-N, Inc., the Debtor, NewCo, and the Informal Bondholder Group (collectively, the “Plan Support Parties”), entered into the Plan Support Agreement, attached to this Disclosure Statement as Exhibit “B.”  The Informal Bondholder Group collectively holds more than two-thirds of the Existing Bonds, as measured by principal amount outstanding.  The Plan Support Parties agreed to implement the restructuring contemplated by the Plan through the solicitation of votes for the Plan and the filing of the Chapter 11 Case pursuant to the terms set forth in the Plan Support Agreement.

 

Pursuant to the Plan Support Agreement, the Plan Support Parties agreed to reorganize the Debtor via the restructuring and recapitalization transactions set forth in the Plan.  The Plan, a copy of which is annexed to this Disclosure Statement as Exhibit “A” and which is described in more detail in ARTICLE IV of this Disclosure Statement, titled “The Plan of

 

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Reorganization,” sets forth the Debtor’s post-Effective Date capital structure and the distribution that each Class of the Debtor’s creditors will receive.  As set forth in the Plan, on the Effective Date, among other things, the Reorganized Debtor will issue the New Secured Bonds and engage in a series of restructuring transactions that will eliminate the current organizational and contractual structure associated with the Facility and vest control of the Facility in the Reorganized Debtor.

 

a.               Forbearance from Exercising Remedies

 

Pursuant to the Plan Support Agreement, the Debtor and the Informal Bondholder Group have agreed to forbear, and have agreed to instruct (either directly or indirectly) the Existing Bond Indenture Trustee, the Lease Indenture Trustee, and the Security Agent under the Lease Indentures to forbear, from exercising any of their rights and remedies against the Debtor, the Owner Lessors, or EME Homer City and its Affiliates, including Edison Mission Energy, EMMT, Edison Mission Holdings Co., Edison Mission Finance Co., Mission Energy Westside, Inc., and Chestnut Ridge Energy Company, with respect to (i) any default in the payment of principal or interest owing under the Existing Bond Indenture or Lease Indentures, (ii) any default in the payment of “Basic Lease Rent” or “Supplemental Lease Rent” owing under the Facility leases, or (iii) any other default under any of the Operative Documents caused by a default in the payment of “Basic Lease Rent” or “Supplemental Lease Rent” owing under the Facility leases, caused by any party to the Operative Documents being or stating that it is insolvent or unable to pay its debts as they come due, or caused by the execution of the Plan Support Agreement, the Master Transaction Agreement, or any other agreements entered into in connection with or transactions contemplated by the Plan Support Agreement or Master Transaction Agreement.  The Debtor and Informal Bondholder group also agreed, pursuant to the Plan Support Agreement, with respect to the Debt Service Reserve Letters of Credit, to (i) request that Union Bank cancel, as of the Effective Date, the Debt Service Reserve Letters of Credit and the Debt Service Reserve Letters of Credit and Reimbursement Agreements, (ii) forbear from drawing on the Debt Service Reserve Letters of Credit, and (iii) if a draw is made thereon, retain at the Debtor all proceeds of such draw, to be applied by the Debtor to satisfy obligations under the Debt Service Reserve Letters of Credit and Reimbursement Agreements.  Such forbearance will continue so long as the Plan Support Agreement remains in effect.

 

Further, pursuant to the Plan Support Agreement, GE Capital and MetLife have agreed, and have agreed to direct the Owner Lessors, to forbear from exercising any rights or remedies against EME Homer City, Edison Mission Energy, EMMT, Edison Mission Holdings Co., Edison Mission Finance Co., Mission Energy Westside, Inc., and Chestnut Ridge Energy Company, with respect to (i) any default in the payment of principal or interest owing under the Existing Bond Indenture or Lease Indentures, (ii) any default in the payment of “Basic Lease Rent” or “Supplemental Lease Rent” owing under the Facility leases, or (iii) any other default under any of the Operative Documents caused by a default in the payment of “Basic Lease Rent” or “Supplemental Lease Rent” owing under the Facility leases, caused by any party to any Operative Documents being or stating that it is insolvent or unable to pay its debts as they come due, or caused by the execution of the Plan Support Agreement, the Master Transaction Agreement, or any other agreements entered into in connection with or transactions

 

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contemplated by the Plan Support Agreement or Master Transaction Agreement.  Such forbearance will continue so long as the Plan Support Agreement remains in effect.

 

b.              Agreement to Consummate the Restructuring

 

Pursuant to the Plan Support Agreement, the Plan Support Parties agreed to, among other things, the following key terms:

 

·                  The Informal Bondholder Group’s agreement to submit ballots accepting the Plan, not to change or withdraw its votes, and to support and not to take any action that would interfere with or delay the confirmation or consummation of the Plan;

 

·                  The Informal Bondholder Group’s agreement to instruct the Existing Bond Indenture Trustee to implement the terms of the Plan Support Agreement, including, without limitation, to consent to, and to request that the Member consent to and cause the filing of, the Debtor’s bankruptcy petition and the Plan (the “Trustee Direction”);

 

·                  The Debtor’s agreement, subject to the Existing Bond Indenture Trustee’s consent, to file the Plan, obtain confirmation thereof as soon as reasonably practicable, not amend, modify or withdraw the Plan without consent of the Requisite Consenting Bondholders (as defined below) and GE Capital, and not take any action that would interfere with or delay confirmation or consummation of the Plan;

 

·                  GE Capital, NewCo, and MetLife’s agreements to use commercially reasonable efforts to obtain confirmation of the Plan and consummate the reorganization of the Debtor, subject to, and in accordance with the terms of, the Plan and the Master Transaction Agreement;

 

·                  GE Capital, NewCo and MetLife’s agreement not to take any action that would interfere with, delay, or postpone the consummation of the Plan;

 

·                  The Informal Bondholder Group’s agreement not to opt out of the releases set forth in Section 10.6 of the Plan (and described in further detail in ARTICLE IV.H.6 of this Disclosure Statement, titled “Releases by Holders of Claims”), and in the event any holder of Existing Bonds that is party to the Plan Support Agreement (each a “Consenting Bondholder”) elects on its Ballot to opt out of such releases, such election will have no force or effect, and such Consenting Bondholder will be subject to such releases in all respects;

 

·                  GE Capital and MetLife’s agreement to grant, and to direct the Owner Lessors to grant, a release coextensive with the release set forth in Section 10.6 of the Plan to each holder of Existing Bonds who has voted to accept the Plan and who has not elected to opt out of the releases provided by Section 10.6 of the Plan; and

 

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·                  The Informal Bondholder Group’s agreement not to sell, assign, transfer, or otherwise dispose of any Existing Bonds unless (i) the transferee is a member of the Informal Bondholder Group or (ii) the transferee assumes the obligations under the Plan Support Agreement of the transferor in respect of the transferred Existing Bonds.

 

c.               Termination and Amendments

 

The Plan Support Agreement also provides for various termination events.  Depending on the termination event, the “Requisite Consenting Bondholders,” defined in the Plan and Plan Support Agreement as holders of no less than the lesser of (i) 75% of the aggregate outstanding principal amount of the Existing Bonds held by the Consenting Bondholders and (b) two-thirds of the aggregate outstanding principal amount of all Existing Bonds, excluding any Existing Bonds held by any GE Capital Affiliate or MetLife Affiliate (as defined in the Plan Support Agreement), may terminate the Plan Support Agreement, GE Capital may terminate the Plan Support Agreement, or either the Requisite Consenting Bondholders or GE Capital may terminate the Plan Support Agreement.

 

The Requisite Consenting Bondholders may terminate the Plan Support Agreement if, among other things:

 

·                  The EPC Contract terminates or a default occurs thereunder by GE Capital or its subsidiary party thereto that would permit the counterparty to the EPC Contract to terminate the EPC Contract; and

 

·                  EME Homer City fails to satisfy certain reimbursement obligations it has assumed in connection with the fees and expenses of the Consenting Bondholders and their counsel.

 

Among the termination events are certain milestones by which the Plan Support Agreement may be terminated by either the Requisite Consenting Bondholders or GE Capital, which include, among other things:

 

·                  Twenty five Business Days after the commencement of the Solicitation.  The Requisite Consenting Bondholders may not terminate the Plan Support Agreement if, by such date, the Debtor has commenced its bankruptcy case.  GE Capital may not terminate the Plan Support Agreement if, by such date, the Debtor has (i) obtained the Trustee Direction and (ii) has commenced the bankruptcy case;

 

·                  Thirty days after the commencement of the Solicitation, unless, by such date, the Debtor has successfully concluded the Solicitation by obtaining sufficient votes from holders of Existing Bonds to accept the Plan as set forth in section 1126 of the Bankruptcy Code;

 

·                  Seventy five days after the commencement of the Debtor’s bankruptcy case, if the Plan has not been confirmed by the Bankruptcy Court by such date;

 

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·                  The date that the Bankruptcy Court enters an order (i) dismissing the Debtor’s bankruptcy case, (ii) converting the case to a case under chapter 7 of the Bankruptcy Code, or (iii) directing the appointment of an examiner with expanded powers or a bankruptcy trustee;

 

·                  The date that an order is entered by the Bankruptcy Court or a court of competent jurisdiction denying confirmation of the Plan;

 

·                  The Effective Date; or

 

·                  [February 20], 2013, provided that, solely in the event that as of [February 20], 2013, the condition precedent set forth in Section 9.1(e) of the Plan is the only condition precedent to the Effective Date that has not been satisfied or waived in accordance with Section 9.2 of the Plan, the immediately preceding date will be extended to [March 22], 2013.

 

The Plan Support Agreement (including the above milestone dates) may be amended with the consent of GE Capital and the Requisite Consenting Bondholders and, with respect to any economic terms of the Plan Support Agreement, MetLife and, with respect to any terms that adversely affect the Debtor in a material respect, the Debtor.  Upon termination of the Plan Support Agreement, the Plan Support Parties will be released from their commitments thereunder.  If the Plan Support Agreement is terminated, it is possible that the Plan will not be confirmed.

 

vi.                                             Permitting and Regulatory Approvals and the Formation of NewCo

 

Operation of the Facility by a new entity requires the authorization of and transfer, amendment or re-issuance of various permits from multiple government agencies.  GE Capital formed Homer City Generation, L.P., referred to throughout this Disclosure Statement as “NewCo,” a Delaware limited partnership, which has initiated the permit application process before the signing of the Master Transaction Agreement.  NewCo is expected to obtain the permits necessary for it to own the Facility and NewCo and/or the Operator, to the extent that Facility operation is delegated by NewCo to the Operator, is expected to obtain the permits necessary for it to operate the Facility.  NewCo will be the surviving entity of the merger transactions described in section 6.1 of the Plan, and will be the Reorganized Debtor under the Plan.

 

PADEP has been notified of the restructuring transactions contemplated by the Master Transaction Agreement and the necessary applications and notices are being prepared and submitted.  It is expected that these environmental permits and approvals will be transferred or amended, as applicable, on or shortly after the Effective Date, and it is expected that the Reorganized Debtor and Operator will be allowed to operate the Facility under existing permits that are not yet transferred on the Effective Date.

 

NewCo will seek the necessary authorizations from FERC for the transactions contemplated by the Master Transaction Agreement and the Plan, and to operate and control the Facility and to make wholesale sales of energy, capacity and ancillary services.

 

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vii.                                          The Working Capital Facility

 

At the closing of the Master Transaction Agreement, the Reorganized Debtor will enter into the Working Capital Facility.  The Working Capital Facility will be provided by GE Capital or an Affiliate thereof in the amount of $75 million, and advances thereunder will be made in the sole discretion of the lender.  The Working Capital Facility will be secured by a first-priority lien on the “Shared Collateral” (as defined in Article VI of this Disclosure Statement, titled “Description of the New Secured Bonds”) of the Reorganized Debtor and the proceeds thereof.  The Working Capital Facility will have a five year maturity with automatic five year extensions, unless notice is delivered by either party at least 60 days prior to the applicable maturity date of such party’s intention not to extend the Working Capital Facility.  Drawings under the Working Capital Facility will be available, at the election of the Reorganized Debtor, in the form of base rate and London Interbank Offered Rate (“LIBOR”) loans, with such loans bearing interest annually at a floating rate of (i) in the case of base rate loans, the prime rate plus 4.50% and (ii) in the case of LIBOR rate loans, the LIBOR rate plus 5.50%.  Certain extensions of credit to or for the benefit of EME Homer City during the negotiation of the Master Transaction Agreement, including certain existing letters of credit, will become obligations under the Working Capital Facility and shall be repaid from future project cash flow.  In addition, as set forth in Sections 2.2 and 2.5 of the Plan, certain expenses paid by GE Capital or its Affiliate may be reimbursed by the Reorganized Debtor using available Cash on hand or funds drawn from the Working Capital Facility.

 

ARTICLE III.

 

THE CHAPTER 11 CASE

 

A.                                                Professionals Retained in the Chapter 11 Case

 

1.                   The Debtor’s Attorneys, Other Professionals, and Other Expenses

 

The Debtor is represented by Richards Layton and, as necessary, will seek to retain Richards Layton under the Bankruptcy Code upon the commencement of the Chapter 11 Case.

 

The Debtor has also retained Epiq Bankruptcy Solutions, LLC (“Epiq”) as its Voting Agent.  EFSHC initially entered into an engagement agreement with the Voting Agent, provided a retainer, and agreed to pay the Voting Agent’s fees and expenses.  The retention agreement was subsequently assigned to the Debtor prior to commencement of the Solicitation.  For further information on the Voting Agent, please see ARTICLE VIII of this Disclosure Statement, titled “The Voting Agent.”

 

Until the Effective Date, the Debtor will have no independent source of revenue from which to pay fees and expenses.  Payments required to be made on the Effective Date may be funded from the Working Capital Facility, from the Reorganized Debtor’s Cash on hand or from its operations following the closing of the Master Transaction Agreement.

 

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B.                                                Significant Events During the Chapter 11 Cases

 

1.                   Claims Matters

 

As the Plan does not impair any Claims against the Debtor other than the Existing Bond Claims, and because the Effective Date is expected to occur within approximately 45 to 60 days of the Commencement Date, the Debtor does not intend to request that the Bankruptcy Court establish a deadline for filing prepetition claims against the Debtor.

 

2.                   First Day Orders

 

On the Commencement Date, the Debtor intends to request a series of orders from the Bankruptcy Court designed to facilitate its reorganization.  Although the Debtor has no business operations, the Debtor anticipates that, in connection with commencing the Chapter 11 Case, the Debtor will seek certain “first day” orders from the Bankruptcy Court permitting the Debtor to, among other things, schedule important hearing and briefing dates in the bankruptcy case (including the Confirmation Hearing), retain Richards Layton as its counsel and Epiq as its Voting Agent, and waive or extend the deadline to file schedules of assets and liabilities.  Failure of the Bankruptcy Court to enter one or more of these orders, or a delay in doing so, could delay, perhaps materially, the hearing on, and the ultimate confirmation of, the Plan.

 

3.                   Confirmation Hearing

 

The Debtor anticipates that, as soon as practicable after commencing the Chapter 11 Case, the Debtor will seek an order of the Bankruptcy Court scheduling a hearing to consider (i) the solicitation of votes in connection with the Plan and (ii) confirmation of the Plan.  The Debtor anticipates that notice of this hearing will be mailed to all known holders of Claims and Equity Interests at least 28 days before the date by which objections must be filed with the Court.  For further information on the Confirmation Hearing, please see ARTICLE XI.C.2 of this Disclosure Statement, titled “The Confirmation Hearing.”

 

4.                   Timetable for the Chapter 11 Case

 

Assuming that the Bankruptcy Court approves the Debtor’s scheduling motion with respect to the Confirmation Hearing, the Debtor anticipates that the Confirmation Hearing will occur within approximately 30 to 45 days of the Commencement Date.  The Debtor does not currently anticipate any significant objections to confirmation of the Plan.  If such objections were to be raised, the anticipated timing for the Confirmation Hearing could be delayed, perhaps materially.

 

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ARTICLE IV.

 

THE PLAN OF REORGANIZATION

 

The Debtor and the Informal Bondholder Group believe that (i) through the Plan, creditors will obtain a substantially greater recovery from the Debtor’s estate than the recovery that would be available if the Debtor’s assets were liquidated under chapter 7 of the Bankruptcy Code, and (ii) the Plan will enable the Facility to continue in operation as a viable going concern.

 

The Plan is annexed to this Disclosure Statement as Exhibit “A” and forms a part of this Disclosure Statement.  The summary of the Plan set forth below is qualified in its entirety by the more detailed provisions set forth in the Plan.

 

The Plan divides the Claims against, and Equity Interests in, the Debtor into the following Classes:

 

Class

 

Designation

 

Impairment

 

Entitled to Vote

1

 

Priority Non-Tax Claims

 

Unimpaired

 

No (deemed to accept)

2

 

Existing Bond Claims

 

Impaired

 

Yes

3

 

Other Claims

 

Unimpaired

 

No (deemed to accept)

4

 

Equity Interests

 

Impaired

 

No (deemed to reject)

 

A.                                                Unclassified Claims and Expenses

 

Generally, the Plan provides for the payment in full of Administrative Expenses, including Administrative Expenses for professional compensation and reimbursement, and Priority Tax Claims (if any), which payments may be funded by the Reorganized Debtor’s operations, Cash on hand or by drawing on the Working Capital Facility.  This section describes how such payment will be made.  The aggregate amount of Administrative Expenses will depend upon the length of the Chapter 11 Case.  Delays in the Chapter 11 Case due to litigation, regulatory approvals, or unforeseen events could materially increase the amount of Administrative Expenses.

 

1.                   Administrative Expenses Generally

 

An Administrative Expense is any cost or expense of administration in the Chapter 11 Case under section 503 of the Bankruptcy Code.  The Debtor’s Administrative Expenses are expected be minimal because the Debtor has no ongoing operations.  The fees and expenses of professionals retained by the Debtor and any fees or charges assessed against the

 

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Debtor’s estate under section 1930, chapter 123, title 28, United States Code (“U.S. Trustee Fees”), the fees and expenses of the Voting Agent, the fees and expenses of the Informal Bondholder Group Counsel that are incurred in connection with the Chapter 11 Case, and reasonable fees and expenses of the Existing Bond Indenture Trustee and Lease Indenture Trustee (including fees and expenses of the Existing Bond Indenture Trustee Professionals and the Lease Indenture Trustee Professionals) that are incurred in connection with the Chapter 11 Case are the types of the Administrative Expenses the Debtor expects to incur during the Chapter 11 Cases.

 

2.                   Treatment of Administrative Expenses

 

All allowed Administrative Expenses will be paid in full, on or after the Effective Date, with Cash from the Reorganized Debtor’s operations, Cash on hand, or through draws on the Working Capital Facility.  The specific provisions of the Plan addressing payment of Administrative Expenses are Section 2.1 (addressing general Administrative Expenses not covered by other sections), Section 2.2. (addressing fees and expenses of retained professionals, including all reasonable fees and expenses of the Informal Bondholder Group Counsel that are incurred in connection with the Chapter 11 Case (whether incurred before or after the Commencement Date) to the extent not otherwise compensated by EME Homer City), and Section 2.3 (addressing fees and expenses of the Existing Bond Indenture Trustee and Lease Indenture Trustee (including fees and expenses of the Existing Bond Indenture Trustee Professionals and the Lease Indenture Trustee Professionals) that are incurred in connection with the Chapter 11 Case (whether incurred before or after the Commencement Date)).

 

3.                   Priority Tax Claims

 

A Priority Tax Claim is any secured or unsecured Claim against the Debtor that falls within the description of section 507(a)(8) of the Bankruptcy Code.  Priority Tax Claims generally consist of claims of governmental authorities for the kinds of taxes specified in section 507(a)(8) of the Bankruptcy Code, such as certain income taxes, property taxes, excise taxes and employment and withholding taxes.  These unsecured claims are given a statutory priority in right of payment.  The Debtor is not liable for any taxes and should not have any Priority Tax Claims.  In the event that any Priority Tax Claims arise, however, the treatment of any such allowed Priority Tax Claims is set forth in Section 2.4 of the Plan.

 

4.                   Other Expenses of Administration

 

Pursuant to Section 2.5 of the Plan, to the extent that GE Capital or its Affiliate has paid any fees and expenses of any Person (including its own fees and expenses), whether incurred prior to or subsequent to the Commencement Date in connection with (i) the business and management of the Debtor or the Reorganized Debtor or (ii) the Chapter 11 Case and the related restructuring transactions, the Reorganized Debtor will be obligated to reimburse GE Capital or its Affiliate, as applicable, for such payments from any available funding source, in an amount not to exceed $17 million in the aggregate, provided that the Reorganized Debtor will only be permitted to satisfy such reimbursement obligation after the date on which Substantial Completion (as defined in the EPC Contract) has occurred.

 

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Any outstanding amounts advanced to EME Homer City by GE Capital or its Affiliate as working capital prior to the Effective Date, including but not limited to letters of credit issued to support obligations of EME Homer City, will become obligations under the Working Capital Facility, which amounts will not be counted against or considered for purposes of applying the expense cap referenced in Section 2.5 of the Plan.

 

B.                                                Classified Claims

 

1.                   Class 1 – Priority Non-Tax Claims

 

Class 1 consists of Priority Non-Tax Claims and is unimpaired by the Plan.  Priority Non-Tax Claims are Claims entitled to priority in payment under section 507(a) of the Bankruptcy Code other than Administrative Expenses and Priority Tax Claims.  Because any Priority Non-Tax Claims will be unimpaired under the Plan and receive treatment of a type specified in section 1124 of the Bankruptcy Code, holders of Priority Non-Tax Claims are conclusively deemed to have accepted the Plan and are not entitled to vote to accept or reject the Plan.  The Debtor does not believe any Priority Non-Tax Claims against it exist.

 

2.                   Class 2 – Existing Bond Claims

 

Class 2 consists of Existing Bond Claims and is impaired by the Plan.  Each holder of an Existing Bond Claim as of the Voting Record Date that is also an Accredited Investor is entitled to vote to accept or reject the Plan.  Existing Bond Claims are any Claim against the Debtor represented by the Existing Bonds.

 

Pursuant to Section 4.2 of the Plan, Class 2 Claims will be allowed (i) in the aggregate principal amount of $174 million for those certain 8.137% Senior Secured Bonds due 2019 and $465.976 million for those certain 8.734% Senior Secured Bonds due 2026, plus (ii) any accrued, payable and unpaid interest (accruing at the applicable non-default rate) on the Existing Bonds as of the Effective Date, whether accruing before or after the Commencement Date, notwithstanding section 502(b)(2) of the Bankruptcy Code.  For the avoidance of doubt, the allowed amount of the Class 2 Claims will not include any premium, including any Make-Whole Premium, whether or not such premium otherwise would be due and payable.

 

Pursuant to Section 4.2 of the Plan, on the Effective Date, in exchange for and in full satisfaction of each holder’s allowed Existing Bond Claims, the Reorganized Debtor will distribute to, or at the direction of, the Existing Bond Indenture Trustee, on behalf of and for ratable distribution to each such holder, the New Secured Bonds having an aggregate principal amount equal to (i) $174 million for those certain 8.137% bonds due 2019 and $465.976 million for those certain 8.734% bonds due 2026 plus (ii) the amount of any accrued and unpaid interest that is payable on the Existing Bonds for the period commencing on April 1, 2012 and concluding on and inclusive of September 30, 2012, which interest will be calculated at the applicable non-default PIK Interest rate under the New Secured Bond Indenture.    The New Secured Bonds will accrue interest for the interest period commencing on October 1, 2012 and concluding on and inclusive of March 31, 2013 at the non-default PIK Interest rate (which interest will be payable on the applicable interest payment date by issuing PIK Notes) or the non-default Cash Rate (which interest will be payable on the applicable interest payment date in cash)

 

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as elected by the Reorganized Debtor in its sole discretion on or prior to the Effective Date.  Solely in the event the Effective Date does not occur prior to April 1, 2013, (a) the amount of any accrued and unpaid interest that is payable on the Existing Bonds for the period commencing on October 1, 2012 and concluding on and inclusive of March 31, 2013, which interest will be calculated at the applicable non-default PIK Interest rate under the New Secured Bond Indenture, will be added to the principal amount of the New Secured Bonds on and as of April 1, 2013, and (b) the New Secured Bonds will accrue interest for the interest period commencing on April 1, 2013 and concluding on and inclusive of September 30, 2013 at the non-default PIK Interest rate (which interest will be payable on the applicable interest payment date by issuing PIK Notes) or the non-default Cash Rate (which interest will be payable on the applicable interest payment date in cash) as elected by the Reorganized Debtor in its sole discretion on or prior to the Effective Date.

 

3.                   Class 3 – Other Claims

 

Class 3 consists of Other Claims pursuant to Section 4.3 of the Plan and is unimpaired by the Plan.  Other Claims are any Claim against the Debtor for which no treatment is provided under the Plan, and do not include an Administrative Expense, a Priority Tax Claim, a Priority Non-Tax Claim, or an Existing Bond Claim.  Because all Other Claims will be unimpaired in accordance with the treatment provided in section 1124 of the Bankruptcy Code, the holders of Other Claims are conclusively deemed to have accepted the Plan and are not entitled to vote to accept or reject the Plan.  The Debtor does not believe that any Other Claims against it exist.

 

4.                   Class 4 – Equity Interests

 

Class 4 consists of Equity Interests and is impaired by the Plan.  Equity Interests are any ownership interest in the Debtor or rights to acquire such an ownership interest in the Debtor.  Because the Debtor is organized as an “orphan special purpose entity,” the only holder of Equity Interests is the Member, which has no economic interest in the Debtor.  Each holder of an Equity Interest is not entitled to vote to accept or reject the Plan and will be conclusively deemed to have rejected the Plan.

 

Pursuant to Section 4.4 of the Plan, on the Effective Date all existing Equity Interests will be canceled, and the Member, as the only holder of Equity Interests, will not be entitled to, and will not receive or retain, any property or interest in property on account of such Equity Interests.

 

C.                                                Means of Implementation and Post-Effective Date Governance

 

1.                   Effective Date Transactions

 

On the Effective Date, the Debtor, GE Capital, MetLife, EFS-N, Inc., NewCo, the Owner Lessors, and EME Homer City will engage in a series of transactions that will result in both the financial and organizational restructuring of the Facility such that the Reorganized Debtor will be the remaining surviving entity in control of the Facility.  Specifically, on the

 

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Effective Date, pursuant to Section 6.1 of the Plan, the following transactions will occur in the following order:

 

(a)                                  the organizational documents of the Owner Lessors will be modified or deemed to have been modified to permit the transactions contemplated by the Master Transaction Agreement and the Plan;

 

(b)                                 the Specified Operative Documents will be terminated or canceled;

 

(c)                                  to the extent requested by the Reorganized Debtor, the Existing Bond Indenture Trustee and the Lease Indenture Trustee will return the Debt Service Reserve Letters of Credit to the issuing bank, and instruct the issuing bank and the agent under the Debt Service Reserve Letters of Credit and Reimbursement Agreements to terminate and cancel the Debt Service Reserve Letters of Credit and Reimbursement Agreements, without any draw on the letters of credit governed thereby, and, to the extent there has been any draw on the letters of credit governed by the Debt Service Reserve Letters of Credit and Reimbursement Agreements, the Reorganized Debtor will use the proceeds of such draw to satisfy reimbursement obligations under the Debt Service Reserve Letters of Credit and Reimbursement Agreements;

 

(d)                                 simultaneously, (i) all of the Owner Lessors and the Debtor will merge into NewCo, with NewCo being the sole surviving entity (thereby becoming the Reorganized Debtor), (ii) EFS-N, Inc., a subsidiary of GE Capital, will contribute all of its membership interests in the Reorganized Debtor to EFSHC,  (iii) EFSHC will contribute its rights accrued as of the Effective Date (but not its obligations) under the EPC Contract to the Reorganized Debtor, (iv) the Closing (as such term is defined in the Master Transaction Agreement) under the Master Transaction Agreement will occur, pursuant to which EME Homer City will transfer certain assets to the Reorganized Debtor, and the Reorganized Debtor will assume certain specified liabilities of EME Homer City, and any Section 467 Loans will be canceled, and (v) the Reorganized Debtor will enter into the New Secured Bond Indenture and related agreements, the other documents related to the New Secured Bond Indenture will become effective (including, without limitation, the New Secured Bond Security Agreement, the Intercreditor Agreement, the Mortgage and the Collateral Assignments), and the Reorganized Debtor will issue the New Secured Bonds in exchange for the Existing Bonds;

 

(e)                                  EFSHC will enter into a Collateral Assignment in respect of the EPC Contract;

 

(f)                                    the Reorganized Debtor will enter into the New Credit Agreement and related agreements, including the Working Capital Facility Security Agreement and the Intercreditor Agreement; and

 

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(g)                                 the Reorganized Debtor may, at the election of its general partner, enter into an agreement with an Operator for the operation and maintenance of the Facility.

 

2.                   Consents by the Debtor and Holders of Existing Bond Claims

 

Pursuant to Section 6.2 of the Plan, on the Effective Date, the holders of Existing Bond Claims, the Debtor, and the Reorganized Debtor, as applicable, will be deemed to have consented to all the transactions contemplated by the Plan, including those listed in Section 6.1 of the Plan, and acceptance of the Plan by Class 2 will be deemed to constitute a valid and enforceable instruction by all holders of Class 2 Claims to the Existing Bond Indenture Trustee, the Debtor, and the Reorganized Debtor, as applicable, and (in turn) by the Existing Bond Indenture Trustee, the Debtor, and the Reorganized Debtor, as applicable, to the Lease Indenture Trustee, the Security Agent, the Independent Manager, the Member, and any Manager to take all actions necessary to effectuate the Plan, including to cause the Owner Lessors to take any and all actions necessary to implement the transactions contemplated by the Plan, including, without limitation, the transactions described in Section 6.1 of the Plan.

 

3.                   Issuance of New Secured Bonds Under the Plan

 

Pursuant to Section 6.3 of the Plan, on the Effective Date, the Reorganized Debtor will be authorized to issue the New Secured Bonds and to execute, deliver and enter into the New Secured Bond Indenture and related Collateral Agreements without the need for any further corporate or other organizational action and without further action by the holders of Claims or Equity Interests, and the New Secured Bond Indenture and related Collateral Agreements will be executed and delivered and the Reorganized Debtor will issue the New Secured Bonds.  On the Effective Date or as soon as reasonably practicable thereafter, the Existing Bond Indenture Trustee will give direction to The Depository Trust Company (“DTC”) to distribute the New Secured Bonds and the New Secured Bond Indenture Trustee will effect that instruction.

 

For a detailed description of the New Secured Bonds and their exemption from registration under certain securities laws, please consult ARTICLE VI and ARTICLE VII of this Disclosure Statement, titled “Description of the New Secured Bonds” and “Exemption from Securities Act Registration,” respectively.

 

4.                   Cancellation and Amendment of Existing Securities and Agreements

 

One purpose of the restructuring transactions contemplated by the Plan is to terminate or cancel all continuing obligations of the parties to the 2001 Transaction.  To effectuate this termination or cancellation, pursuant to Section 6.4 of the Plan, on the Effective Date, the existing Specified Operative Documents, including the Existing Bond Indenture, Lease Indentures and all Lessor Notes, will be terminated and canceled, and any and all obligations and security interests, liens, pledges, and any other encumbrances thereunder immediately terminated, without any consideration, and without need of any further action or consent, except as set forth in the Plan.  To the extent that any document that forms a part of the 2001 Transaction is not included in the list of Specified Operative Documents, and contains any liabilities or any unperformed obligations, such liabilities will be released, and such obligations

 

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will be terminated and canceled, and the Debtor and the Reorganized Debtor, pursuant to Section 6.4 of the Plan, will release such liabilities and the parties obligated to perform such obligations from any future performance, provided, however, that nothing in Section 6.4 of the Plan will operate to release or discharge any party from any of its respective obligations under the Plan, the Master Transaction Agreement (including under or in respect of any rights, assets or properties transferred pursuant to the EMMT Assignment Agreement (as defined in the Master Transaction Agreement)) or under any other agreement entered into in connection with the Master Transaction Agreement or the Plan.  A complete list of the Specified Operative Documents is attached to the Plan as Exhibit 1.1.90.

 

Upon the termination and cancellation of the Specified Operative Documents, the Debtor, the Reorganized Debtor, the Owner Lessors, EME, the Owner Participants, the Lease Indenture Trustees, the Security Agent, the Bond Indenture Trustee, the Manager, and members of the Informal Bondholder Group will have no further liability thereunder to any party to the Participation Agreements or the Specified Operative Documents, or to any holder of Existing Bonds, except as otherwise set forth in the Plan, the Master Transaction Agreement, and any other agreement entered into in connection with the Master Transaction Agreement or the Plan.

 

5.                   Surrender of Existing Securities

 

Pursuant to Section 6.5 of the Plan, as soon as practicable, on or after the Effective Date, or as soon thereafter as is reasonably practicable, each holder of an Existing Bond Claim will surrender its Existing Bonds to the Existing Bond Indenture Trustee, and the Debtor, as holder of the Lessor Notes Claim, will surrender its Lessor Notes to the Lease Indenture Trustee.  With respect to Existing Bond Claims held in the name of, or by a nominee of, DTC, the Reorganized Debtor will seek the cooperation of DTC and will provide appropriate instructions to the Existing Bond Indenture Trustee.

 

6.                   Entry into Working Capital Facility

 

Pursuant to Section 6.6 of the Plan, on the Effective Date, the New Credit Agreement governing a new Working Capital Facility and related Collateral Agreements will be executed and delivered by the Reorganized Debtor, and the Reorganized Debtor will be deemed authorized to execute, deliver and enter into the New Credit Agreement and related Collateral Agreements without the need for any further corporate or other organizational action and without further action by the holders of Claims or Equity Interests.  For a further description of the Working Capital Facility, please see ARTICLE II.F.2.vii of this Disclosure Statement, titled “The Working Capital Facility.”

 

7.                   Issuance of New Limited Partnership Interests

 

Pursuant to Section 6.7 of the Plan, the issuance of the New Limited Partnership Interests by the Reorganized Debtor will be authorized without the need for any further corporate or other organizational action.  Pursuant to the Plan, on the Effective Date, the New Limited Partnership Interests in the Reorganized Debtor will be owned by EFSHC and by MetLife in accordance with the Limited Partnership Agreement.  For further information concerning the

 

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Limited Partnership Agreement, please see ARTICLE V of this Disclosure Statement, titled “Post-Confirmation Governance of the Reorganized Debtor.”

 

8.                   Corporate or Other Organizational Action

 

The Plan provides for all corporate or other organizational authority necessary to consummate the Plan.  Pursuant to Section 6.8 of the Plan, as of the Effective Date, all actions contemplated by the Plan will be deemed authorized and approved in all respects, including (i) the issuance of the New Secured Bonds, (ii) execution of the New Secured Bond Indenture, (iii) execution of the New Credit Agreement, (iv) execution of the Collateral Agreements, (v) the mergers described in section 6.1 of the Plan, including the merger of the Debtor with and into NewCo, with NewCo surviving and becoming the Reorganized Debtor, and (vi) all other actions contemplated by the Plan (whether occurring before, on or after the Effective Date).  All matters provided for in the Plan and any corporate or other organizational action required by the Debtor, the Reorganized Debtor or NewCo in connection with the Plan will be deemed to have occurred and shall be in effect, without any requirement of further action by the holders of Existing Bond Claims, the Manager, or the directors, partners, officers, operators or managers of the Reorganized Debtor.

 

Pursuant to Section 6.8 of the Plan, on the Effective Date, the appropriate officers of the Debtor, the Reorganized Debtor or the Operator, as applicable, will be authorized and directed to issue, execute, and deliver the agreements, documents, securities, and instruments contemplated by the Plan (or necessary or desirable to effect the transactions contemplated by the Plan) in the name of and on behalf of the Reorganized Debtor, including (i) the New Secured Bond Indenture, (ii) the New Secured Bonds, (iii) the New Credit Agreement, (iv) the Collateral Agreements and (v) any and all other agreements, documents, securities, and instruments relating to the foregoing, including, without limitation, to the extent applicable, any of the documents and deliverables referenced on Exhibit 6.8 to the Plan.  The authorizations and approvals contemplated by Section 6.8 of the Plan will be effective notwithstanding any requirements under non-bankruptcy law.  For further information concerning the corporate governance of the Reorganized Debtor, please see ARTICLE V of this Disclosure Statement, titled “Post-Confirmation Governance of the Reorganized Debtor.”

 

Pursuant to Section 6.8 of the Plan and section 1129(a)(5) of the Bankruptcy Code, the Debtor will file with the Bankruptcy Court, at least ten (10) days prior to the Confirmation Hearing, the identity and affiliations of any Person proposed to serve on the initial board of directors or as an officer of the general partner of the Reorganized Debtor, as of the Effective Date.

 

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9.                   Compromise of Controversies Under Rule 9019 of the Bankruptcy Code

 

In consideration for the distributions and other benefits provided under the Plan, Section 6.9 of the Plan provides that the provisions of the Plan will constitute a good faith compromise and settlement of all Claims and controversies resolved under the Plan, and the entry of the Confirmation Order will constitute the Bankruptcy Court’s approval of such compromise and settlement under Bankruptcy Rule 9019.

 

D.                                                Provisions Governing Distributions

 

1.                   Distributions to Holders of Claims as of the Effective Date

 

Pursuant to Section 7.1 of the Plan, all distributions under the Plan shall be made by the Disbursing Agent in accordance with the terms of the Plan, except as otherwise provided in the Plan.

 

2.                   Date of Distributions

 

Pursuant to Section 7.2 of the Plan, and unless otherwise provided in the Plan, any distributions and deliveries to be made under the Plan will be made on the Effective Date, or as soon as reasonably practicable thereafter, and will be deemed made on the Effective Date.  In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, the making of such payment or the performance of such act may be completed on the next succeeding Business Day but will be deemed to have been completed as of the required date.

 

3.                   Sources of Cash for Plan Payments

 

Pursuant to Section 7.3 of the Plan, and except as otherwise provided in the Plan or Confirmation Order, all Cash required for the payments to be made under the Plan will be obtained from the Reorganized Debtor’s operations, Cash on hand and the Working Capital Facility.

 

4.                   Disbursing Agent

 

Pursuant to Section 7.4 of the Plan, all distributions under the Plan will be made by the Reorganized Debtor as Disbursing Agent or such other entity designated by the Reorganized Debtor as Disbursing Agent on the Effective Date; provided, however, that with respect to the holders of Existing Bond Claims, such distributions will be made in accordance with Section 7.8 of the Plan.  No Disbursing Agent will be required to give any bond or surety or other security for the performance of its duties unless otherwise ordered by the Bankruptcy Court.

 

5.                   Rights and Powers of Disbursing Agent

 

Pursuant to Section 7.5 of the Plan, the Disbursing Agent will be empowered to (i) effect all actions and execute all agreements, instruments, and other documents necessary to perform its duties under the Plan, (ii) make all distributions contemplated by the Plan and

 

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(iii) exercise such other powers as may be vested in the Disbursing Agent by order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the Disbursing Agent to be necessary and proper to implement the provisions of the Plan.

 

6.                   Expenses of the Disbursing Agent

 

Pursuant to Section 7.6 of the Plan, and except as otherwise ordered by the Bankruptcy Court, the amount of any reasonable fees and expenses incurred by the Disbursing Agent on or after the Effective Date (including, without limitation, taxes) and any reasonable compensation and expense reimbursement claims (including, without limitation, reasonable attorney fees and expenses) made by the Disbursing Agent will be paid in Cash by the Reorganized Debtor in the ordinary course of business.

 

7.                   Delivery of Distributions

 

Pursuant to Section 7.7 of the Plan, and subject to Bankruptcy Rule 9010 and except as otherwise set forth in the Plan, (i) distribution to holders of Class 2 Claims will be made in accordance with Section 7.8 of the Plan and (ii) all distributions to any holder of a Claim in Class 1 or Class 3 will be made at the address of such holder as set forth in the books and records of the Debtor, its agent, or the Disbursing Agent, unless the Debtor or the Reorganized Debtor, as applicable, has been notified in writing of a change of address.  In the event that any distribution to any holder is returned as undeliverable, the Disbursing Agent will use reasonable efforts to determine the current address of such holder, but no distribution to such holder will be made unless and until the Disbursing Agent has determined the then current address of such holder, at which time such distribution will be made to such holder without interest; provided, however, that such distributions will be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one year from the Effective Date.  After such date, all unclaimed property or interest in property that the Disbursing Agent previously sought to distribute to any holder of a Claim in Class 1 or Class 3 will revert to the Reorganized Debtor, and the Claim of any such holder to such property or interest in property will be discharged and forever barred notwithstanding any applicable federal or state escheat, abandoned, or unclaimed property laws to the contrary.

 

8.                   Delivery of Distributions to Holders of Claims in Class 2 (Existing Bond       Claims)

 

Pursuant to Section 7.8 of the Plan, the Existing Bond Indenture Trustee will be deemed to be the holder of all Existing Bond Claims for purposes of distributions made under the Plan, and all distributions on account of such Existing Bond Claims will be made to or at the direction of the Existing Bond Indenture Trustee.  The Existing Bond Indenture Trustee will hold or direct such distributions for the ratable benefit of the holders of the Existing Bond Claims, and, after the Reorganized Debtor distributes the New Secured Bonds to or at the direction of the Existing Bond Indenture Trustee, the Reorganized Debtor will have no further responsibility for the distribution of the New Secured Bonds.  As soon as practicable following compliance with the requirements concerning the surrender of the Existing Bonds as set forth in Section 6.5 of the Plan, the Existing Bond Indenture Trustee will arrange to deliver such distributions to or on behalf of such bondholders.  The New Secured Bond Indenture Trustee will cooperate with the

 

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Debtor, the Reorganized Debtor, and the Bond Indenture Trustee and take all reasonable actions to effect the distribution to holders of Existing Bond Claims.

 

9.                   Manner of Payment Under Plan

 

Pursuant to Section 7.9 of the Plan, any distributions of Cash under the Plan will be made by the Disbursing Agent on behalf of the Debtor.  At the option of the Disbursing Agent, any Cash payment to be made under the Plan will be made by a wire transfer if the creditor has provided wire transfer instructions to the Debtor or the Disbursing Agent at least three (3) Business Days prior to the Effective Date and, if no timely wire transfer instructions have been received from a creditor, by check, or as otherwise required or provided in applicable agreements.

 

E.                                                  Procedures for Treating Disputed Claims Under the Plan

 

Pursuant to Article VIII of the Plan, holders of Claims and Equity Interests need not file proofs of claim with the Bankruptcy Court and will be subject to the Bankruptcy Court process only to the extent provided in the Plan.  The Existing Bond Claims are allowed to the extent provided in the Plan.  On and after the Effective Date, except as otherwise provided in the Plan, all other Claims will be paid and determined in the ordinary course of business of the Reorganized Debtor.

 

Pursuant to Article VIII of the Plan, if the Debtor disputes any other Claim, such dispute will be determined, resolved or adjudicated, as the case may be, in a manner as if the Chapter 11 Case had not been commenced, in accordance with the terms of any agreements governing, instruments evidencing, or other documents (if any) relating to such Claim and applicable non-bankruptcy rules, laws, and procedures, and in a forum (judicial, arbitral, or otherwise) of competent jurisdiction, and such Claim and all the Debtor’s defenses to such Claim will survive the Effective Date as if the Chapter 11 Case had not been commenced; provided, however, that the Debtor may elect, at its sole option, to object under section 502 of the Bankruptcy Code to any proof of claim filed by or on behalf of a holder of a Claim.

 

F.                                                  Treatment of Executory Contracts and Unexpired Leases

 

The Debtor is unaware of any contracts to which it is a party, other than (i) the Existing Bond Indenture and other contracts related to the 2001 Transaction, (ii) the Debtor’s LLC Agreement, and (iii) the Debtor’s engagement agreements with Richards Layton and the Voting Agent.

 

As set forth in Section 6.4 of the Plan, items (i) and (ii) mentioned in the previous paragraph will be canceled pursuant to the restructuring transactions contemplated in Section 6.1 of the Plan, and the Debtor’s engagement of Richards Layton and the Voting Agent will terminate after the restructuring contemplated in the Plan is complete.  As a result, the Plan does not provide for the Debtor to assume or reject any executory contracts.

 

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G.                                                Conditions Precedent to the Effective Date of the Plan

 

1.                   Occurrence of the Effective Date

 

Pursuant to Section 9.1 of the Plan, the “effective date of the plan,” as used in section 1129 of the Bankruptcy Code, will not occur, and the Plan will be of no force and effect, until the first Business Day on which the later of the following has occurred:  (i) the conditions precedent to the effectiveness of the Plan specified in Section 9.1 of the Plan have been satisfied or waived, or (ii) if a stay is in effect, such stay has expired, dissolved, or been lifted (such date, the “Effective Date”).

 

Pursuant to Section 9.1 of the Plan, the occurrence of the Effective Date is subject to satisfaction of the following conditions precedent:

 

i.                            the Plan and Confirmation Order are in form and substance reasonably satisfactory to GE Capital and the Requisite Consenting Bondholders, and the Confirmation Order has become a Final Order;

 

ii.                         the New Secured Bond Indenture has been qualified under Section 306 of the Trust Indenture Act of 1939, as amended, as of the issuance date of the New Secured Bonds;

 

iii.                      the New Secured Bond Indenture and Collateral Agreements are in the form agreed to in the Plan Support Agreement, or are in form and substance acceptable to the Requisite Consenting Bondholders and GE Capital and the closing documents and deliverables identified on Exhibit 6.8 to the Plan are in form and substance reasonably acceptable by the Requisite Consenting Bondholders and GE Capital;

 

iv.                     All reasonable fees and expenses of the Informal Bondholder Group Counsel, the Existing Bond Indenture Trustee Professionals, the Lease Indenture Trustee Professionals, the New Secured Bond Indenture Trustee Professionals, and the Trustees, incurred in connection with the Chapter 11 Case, the New Secured Bond Indenture and related documents, and all transactions set forth herein or necessary to implement and consummate the Plan (whether incurred before or after the Commencement Date) and invoiced on or before the Confirmation Date shall have been paid;

 

v.                        NewCo has obtained all of the Required Approvals, which are in full force and effect without any action being taken by any Governmental Unit that would restrain, prevent or otherwise impose materially adverse conditions on the transactions contemplated in the Plan;

 

vi.                     NewCo has obtained all the Other Required Approvals, which Other Required Approvals are in full force and effect with all applicable waiting periods imposed by any law or any government authority expiring without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose materially adverse conditions on the transactions

 

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contemplated in the Plan; provided, however, for any Other Required Approvals that have not been obtained by NewCo on or prior to the Effective Date, this condition will be deemed to have been satisfied if (i) the Governmental Unit that issues such Other Required Approval acknowledges in writing that it has received an application from NewCo for such Other Required Approval and the application is being processed by such Governmental Unit, (ii) EME Homer City holds the applicable Other Required Approval and has agreed to continue operating the Facility insofar as necessary for EME Homer City’s Other Required Approval to enable continued operation of the Facility until the applicable Other Required Approval is obtained by the Reorganized Debtor or (iii) applicable law or procedure provides for the transfer of the Other Required Approval to occur following a transfer in the ownership or operation of the Facility;

 

vii.                  The Requisite Consenting Bondholders have consented to the selection of the Operator, which consent may not be unreasonably withheld, conditioned or delayed;

 

viii.               the closing of the transactions under the Master Transaction Agreement has occurred on the Effective Date in accordance with the transactions described in Section 6.1 of the Plan, and EME has granted a release coextensive with the release set forth in Section 10.6 of the Plan to each holder of Bonds who has voted to accept the Plan and who has not elected to opt out of providing the release provided by Section 10.6 of the Plan;

 

ix.                       the New Secured Bond Indenture Trustee has received from each party to the New Secured Bond Indenture a counterpart of the New Secured Bond Indenture executed on behalf of such party and such agreements are in full force and effect in accordance with their terms;

 

x.                          the New Secured Bond Collateral Agent has received from each party to the New Secured Bond Security Agreement, the Intercreditor Agreement, the Mortgage and the Collateral Assignments a counterpart of each such agreement executed by such party and such agreements are in full force and effect in accordance with their terms;

 

xi.                       the Informal Bondholder Group Counsel has received evidence reasonably satisfactory to it that: (i) the New Secured Bond Indenture, the New Secured Bond Security Agreement, the Intercreditor Agreement, the Mortgage and the Collateral Assignments have been duly executed and delivered and, subject only to the occurrence of the Effective Date, are in full force and effect in accordance with their terms; and (ii) to the extent covenants are required to be satisfied as of the Issue Date (as defined in the New Secured Bond Indenture) under the New Secured Bond Indenture and the Collateral Agreements, the Informal Bondholder Group Counsel has received evidence, in form and substance reasonably acceptable to the Informal Bondholder Group Counsel)

 

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that, subject only to the occurrence of the Effective Date, such covenants have been satisfied as of the Issue Date;

 

xii.                  at the time of, and immediately after giving effect to the issuance of the New Secured Bonds, no Default (as defined in the New Secured Bond Indenture) has occurred and is continuing;

 

xiii.               the Informal Bondholder Group Counsel has received evidence reasonably satisfactory to it that the New Credit Agreement has been duly executed and delivered and all conditions precedent to initial borrowings thereunder have been satisfied or duly waived;

 

xiv.              the Debtor or GE Capital has used commercially reasonable efforts to obtain a senior secured long-term debt rating in accordance with the terms of the New Secured Bond Indenture;

 

xv.                 NewCo has provided the Informal Bondholder Group Counsel a certificate of good standing within thirty (30) days prior to the Effective Date;

 

xvi.              the Informal Bondholder Group counsel has been provided with copies of any officers’ certificates, trustee’s certificates and legal opinions that are provided to the New Secured Bond Indenture Trustee;

 

xvii.           the New Secured Bond Indenture Trustee has authenticated the New Secured Bonds and has acknowledged the New Secured Bond authentication order in accordance with the terms of the New Secured Bond Indenture;

 

xviii.        GE Capital, MetLife and the Owner Lessors have provided the releases set forth in Section 4.03 of the Plan Support Agreement; and

 

xix.                EFSHC has contributed and assigned to the Reorganized Debtor such portion of the Work (as defined in the EPC Contract and inclusive of the items included in such term in Section 8.1 therein) to which legal title has passed, as of the Effective Date, to EFSHC pursuant to section 8.1 of the EPC Contract.

 

2.                   Waiver of Conditions Precedent

 

Pursuant to Section 9.2 of the Plan, except for the condition that the New Secured Bond Indenture be qualified under Section 306 of the Trust Indenture Act of 1939 as of the issuance date of the New Secured Bonds, each of the conditions precedent to the occurrence of the Effective Date specified above may be waived by GE Capital and the Requisite Consenting Bondholders without any notice to other parties in interest or the Bankruptcy Court and without a hearing.

 

3.                   Effect of Failure of Conditions to the Effective Date

 

Pursuant to Section 9.3 of the Plan, if the conditions specified in Section 9.1 of the Plan have not been satisfied or waived in accordance with Section 9.2 of the Plan

 

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(x) prior to [February 20], 2013 or (y) solely in the event that as of [February 20], 2013, the condition precedent set forth in Section 9.1(e) of the Plan is the only condition precedent to the Effective Date that has not been satisfied or waived in accordance with Section 9.2 of the Plan, prior to [March 22], 2013, then (i) the Confirmation Order will be of no further force or effect; (ii) no distributions under the Plan will be made; (iii) the Debtor and all holders of Claims and Equity Interests will be restored to the status quo ante as of the day immediately preceding the Confirmation Date as though the Confirmation Date had never occurred; and (iv) all of the Debtor’s obligations with respect to the Claims and Equity Interests will remain unchanged, and nothing contained in the Plan will be deemed to constitute a waiver or release of any claims by or against the Debtor or any other entity or to prejudice in any manner the rights of the Debtor or any other entity in any further proceedings involving the Debtor or otherwise.  Upon such occurrence, the Debtor will file a written notification with the Bankruptcy Court that the Plan has been withdrawn and will serve such notice upon the legal advisors to each of the Existing Bond Indenture Trustee, the Lease Indenture Trustee, the Member or Manager, the Independent Manager, the New Secured Bond Indenture Trustee, the Informal Bondholder Group, GE Capital, and MetLife.

 

4.                   Reservation of Rights

 

Pursuant to Section 9.4 of the Plan, the Plan will have no force or effect unless and until the Effective Date occurs.  Prior to the Effective Date, none of the filing of the Plan, any statement or provision contained in the Plan, or action taken by the Debtor or any other party with respect to the Plan will be, or will be deemed to be, an admission or waiver of any rights of the Debtor or any other party with respect to any Claims or Equity Interests or any other matter.

 

5.                   Substantial Consummation

 

Pursuant to Section 9.5 of the Plan, substantial consummation of the Plan under section 1101(2) of the Bankruptcy Code will be deemed to occur on the Effective Date.

 

H.                                                Effect of Confirmation

 

1.                   Vesting of Assets

 

Pursuant to Section 10.1 of the Plan, on the Effective Date, pursuant to section 1141(b) and (c) of the Bankruptcy Code, except for the Liens and security interests granted to secure the obligations under the New Credit Agreement and the New Secured Bonds and as otherwise provided in the Plan, all property of the Debtor’s estate will vest in the Reorganized Debtor free and clear of all Claims, Liens, encumbrances, charges, and other interests.  On and after the Effective Date, the Reorganized Debtor may operate its business and may use, acquire, and dispose of its property without supervision or approval by the Bankruptcy Court, free from any restrictions of the Bankruptcy Code or the Bankruptcy Rules, and in all respects as if there were no pending case under any chapter or provision of the Bankruptcy Code, except as provided in the Plan.

 

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2.      Binding Effect

 

Pursuant to Section 10.2 of the Plan, and except as otherwise provided in section 1141(d)(3) of the Bankruptcy Code and subject to the occurrence of the Effective Date, on and after the Confirmation Date, the provisions of the Plan will be binding upon and inure to the benefit of the Debtor, the Reorganized Debtor, any holder of a Claim against or Equity Interest in the Debtor and such holder’s respective successors and assigns, whether or not the Claim or Equity Interest of such holder is impaired under the Plan and whether or not such holder has accepted the Plan.

 

3.      Discharge of Homer City Funding LLC

 

Pursuant to Section 10.3 of the Plan, except to the extent otherwise provided in the Plan, the treatment of all Claims against or Equity Interests in the Debtor under the Plan will be in exchange for and in complete satisfaction, discharge, and release of, all Claims against the Debtor or Equity Interests in the Debtor, in each case, arising prior to the Effective Date, of any nature whatsoever, known or unknown, including any interest accrued or expenses incurred thereon from and after the Commencement Date, or against the Estate or its properties or interests in property.  Except as otherwise provided in the Plan, upon the Effective Date, all Claims against the Debtor and Equity Interests in the Debtor, in each case, arising prior to the Effective Date, will be satisfied, discharged and released in full exchange for the consideration provided under the Plan.  Except as otherwise provided in the Plan, all entities will be precluded from asserting against the Reorganized Debtor or its respective properties or interests in property, any other Claims based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Effective Date.

 

4.      Exculpation

 

The Exculpated and Released Parties are parties that are centrally involved in the Debtor’s restructuring and include the Owner Participants, the Owner Lessors, EME, the Existing Bond Indenture Trustee, the Lease Indenture Trustee, the Security Agent, the New Secured Bond Indenture Trustee, the Manager, GE Capital, MetLife, the members of the Informal Bondholder Group (except with respect to any such member that elects to opt out of providing the release provided by Section 10.6 of the Plan), any member of Class 3 who has voted to accept the Plan and who has not elected to opt out of providing the release provided by Section 10.6 of the Plan and the respective successors, assigns, predecessors, control persons, affiliated entities, members, managers, officers, directors, employees, shareholders, agents, attorneys, financial advisors, investment bankers, accountants and representatives of the foregoing.  Pursuant to Section 10.4 of the Plan, the Exculpated and Released Parties, the Debtor and the Reorganized Debtor, each in their representative and individual capacities, will have no liability to any holder of a Claim or Equity Interest or any other Person or entity for any act or omission in connection with, arising out of, or relating to the negotiation of the Plan Support Agreement, the Disclosure Statement, the New Credit Agreement, the New Secured Bond Indenture, the Plan, the Solicitation of votes for and the pursuit of confirmation of the Plan, the consummation of the Plan, or the administration of the Chapter 11 Case, the Plan, or the property to be distributed under the Plan, or any other document related to the foregoing, except for actual fraud, willful misconduct, gross negligence or criminal conduct, as determined by a Final Order

 

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and, in all respects, will be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan.

 

5.      Releases by the Debtor and Reorganized Debtor

 

Pursuant to Section 10.5 of the Plan, except for the right to enforce any Claims, causes of action and the like arising under or with respect to the Plan, the Implementation Agreement or the Master Transaction Agreement, to the fullest extent permissible under applicable law, for consideration received, the sufficiency of which is acknowledged in the Plan, the Debtor and Reorganized Debtor will, as of the Effective Date, be deemed to unconditionally and forever release, waive, and discharge the Exculpated and Released Parties, each in their representative and individual capacities, from any prosecution or attempted prosecution of any and all Claims, causes of action and the like, arising before the Effective Date, that the Debtor and/or the Reorganized Debtor may have arising under, related to or in connection with the Lease Indentures, the Existing Bond Indenture, the Existing Bonds or any of the documents entered into in connection with the Participation Agreements, including, but not limited to, the Operative Documents defined therein; provided, however, that nothing in Section 10.5 of the Plan will operate to release or discharge any of the Exculpated and Released Parties from any of their respective obligations under the Plan, the Master Transaction Agreement (including under or in respect of any rights, assets or properties transferred pursuant to the EMMT Assignment Agreement (as defined in the Master Transaction Agreement)) or under any other agreement entered into in connection with the Master Transaction Agreement or the Plan.  For the avoidance of doubt, the Debtor will forever release, waive, and discharge all claims it has, as a holder of Lessor Notes or otherwise, under the Lease Indentures, the Lessor Notes, the Existing Bond Indenture and related documents against the Owner Participants, EME, the Lease Indenture Trustee, the Existing Bond Indenture Trustee, the Security Agent, the Informal Bondholder Group, the Manager, the Independent Manager, and the Owner Lessors, and each of their respective officers, directors, agents, employees, attorneys, advisors, or other professionals.

 

6.      Releases by Holders of Claims

 

Pursuant to Section 10.6 of the Plan, as of the Effective Date, to the fullest extent permissible under applicable law, for consideration received, the sufficiency of which is acknowledged in the Plan, each holder of a Claim entitled to vote to accept or reject the Plan who votes to accept the Plan will be deemed to unconditionally and forever release, waive, and discharge the Exculpated and Released Parties, the Debtor and the Reorganized Debtor, each in their representative and individual capacities, from any prosecution or attempted prosecution of any and all Claims, causes of action and the like that such holder of a Claim has or may have against the above-referenced parties, in each case, relating to the Debtor or the 2001 Transaction, including, without limitation, any claims, causes of action and the like arising under, related to or in connection with the 2001 Transaction, the Lease Indentures, the Existing Bond Indenture, the Existing Bonds or any of the documents entered into in connection with the Participation Agreements, including, but not limited to, the Operative Documents defined therein, provided, however, except for members of the Informal Bondholder Group, each holder of a Claim entitled to vote to accept or reject the Plan may choose to opt out of providing such releases to the Exculpated and Released Parties by checking the appropriate box on such holder’s Ballot; provided,

 

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further, that any such holder that opts out of providing the releases set forth in Section 10.6 of the Plan will not itself receive releases thereunder; provided, further, that nothing in Section 10.6 of the Plan will operate to release or discharge any of the Exculpated and Released Parties, the Debtor, or the Reorganized Debtor from any of their respective obligations under the Plan, the Master Transaction Agreement (including under or in respect of any rights, assets or properties transferred pursuant to the EMMT Assignment Agreement (as defined in the Master Transaction Agreement)) or any other agreement entered into in connection with the Master Transaction Agreement or the Plan; and provided, further, that that the foregoing will not operate as a waiver or release of Claims or causes of action, if any, asserted by any holder of a Claim against any of the Exculpated and Released Parties, the Debtor, or the Reorganized Debtor (i) arising out of actual fraud or criminal conduct, as determined by a Final Order or (ii) arising out of any act or omission of an Exculpated and Released Party, the Debtor or the Reorganized Debtor unknown to such holder of a Claim as of the deadline for objecting to confirmation of the Plan, that constitutes willful misconduct or gross negligence of such Exculpated and Released Party, the Debtor or the Reorganized Debtor.

 

Pursuant to the Plan Support Agreement, the members of the Informal Bondholder Group have agreed not to exercise this opt-out right.

 

7.      Waiver of Statutory Limitations on Releases

 

Pursuant to section 10.7 of the Plan, each of the releasing parties in each of the releases contained in the Plan expressly acknowledges that, although ordinarily a release may not extend to claims which the releasing party does not know or suspect to exist in its favor, which if known by it may have materially affected its settlement with the party released, they have carefully considered and taken into account in determining to enter into the above releases the possible existence of such unknown losses or claims.  Without limiting the generality of the foregoing, each releasing party expressly waives any and all rights conferred upon it by any statute or rule of law which provides that a release does not extend to claims which the claimant does not know or suspect to exist in its favor at the time of executing the release, which if known by it may have materially affected its settlement with the released party.  One example of this type of state statute is California Civil Code section 1542, which provides that:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

 

The releases contained in the Plan are effective regardless of whether matters released thereby are presently known or unknown, suspected or unsuspected, foreseen or unforeseen.

 

8.      Waiver of Avoidance Actions

 

Pursuant to Section 10.8 of the Plan, as of the Effective Date, the Reorganized Debtor will be deemed to have waived the right to prosecute, and to have settled and released for fair value, any avoidance or recovery actions under sections 544, 545, 547, 548, 549, 550, 551 and 553 of the Bankruptcy Code or other applicable law that belong to the Reorganized Debtor

 

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and/or that the Reorganized Debtor could have prosecuted as a debtor or debtor in possession (i) in respect of or relating to the Lease Indentures, the Specified Operative Documents, the Existing Bond Indenture or the Existing Bonds, or (ii) otherwise against the Owner Participants, the Owner Lessors, EME, the Existing Bond Indenture Trustee, the Lease Indenture Trustee, the Security Agent, any holder of Existing Bonds, or any of their respective Affiliates.

 

9.      Term of Injunctions or Stays

 

Pursuant to Section 10.9 of the Plan, and except to the extent otherwise provided in the Plan, all Persons or entities who have held, hold or may hold Claims against the Debtor or Equity Interests in the Debtor will be permanently enjoined, from and after the Effective Date, from (i) commencing or continuing in any manner any action or other proceeding of any kind on any such Claim or Equity Interest against the Reorganized Debtor, (ii) the enforcement, attachment, collection or recovery by any manner or means of any pre-Effective Date judgment, award, decree or order against the Reorganized Debtor with respect to any such Claim or Equity Interest, (iii) creating, perfecting or enforcing any encumbrance of any kind against the Reorganized Debtor, or against the property or interests in property of the Reorganized Debtor, as applicable with respect to any such pre-Effective Date Claim or Equity Interest, (iv) asserting any right of setoff, subrogation, or recoupment of any kind against any pre-Effective Date obligation due from the Debtor or the Reorganized Debtor, or against the property or interests in property of the Reorganized Debtor with respect to any such pre-Effective Date Claim or Equity Interest and (v) pursuing any Claim released or waived pursuant to Sections 10.5 through 10.8 of the Plan.

 

Unless otherwise provided in the Plan, all injunctions or stays arising under or entered during the Chapter 11 Case under sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, will remain in full force and effect until the Effective Date.

 

10.    Preservation of Claims

 

Pursuant to Section 10.9 of the Plan, and except as otherwise provided in the Plan, including Sections 10.5 and 10.6 thereof, as of the Effective Date, pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, any cause of action accruing to the Debtor will become an asset of the Reorganized Debtor, and the Reorganized Debtor will have the authority to commence and prosecute any such cause of action for the benefit of the Estate.  After the Effective Date, the Reorganized Debtor will have the authority to compromise and settle, otherwise resolve, discontinue, abandon or dismiss all such causes of action without the approval of the Bankruptcy Court.

 

11.    Retention of Jurisdiction

 

Pursuant to Article XI of the Plan and sections 105(c) and 1142 of the Bankruptcy Code, the Bankruptcy Court will retain and will have exclusive jurisdiction over any matter

 

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(i) arising under the Bankruptcy Code, (ii) arising in or related to the Chapter 11 Cases or the Plan, or (iii) to perform any of the following actions:

 

(i)                                   to determine any motion, adversary proceeding, application, contested matter, and other litigated matter involving the Debtor pending on or after the Effective Date;

 

(ii)                                to ensure that distributions to holders of Claims are accomplished as provided in the Plan;

 

(iii)                             to allow, disallow, determine, liquidate, classify, estimate, or establish the priority or secured or unsecured status of any Claim or Equity Interest, including the resolution of any request for payment of any Administrative Expense and the resolution of any objections to the allowance or priority of Claims or Equity Interests;

 

(iv)                            to enter, implement, or enforce such orders as may be appropriate in the event the Confirmation Order is for any reason stayed, reversed, revoked, modified, or vacated;

 

(v)                               to issue injunctions, enter and implement orders, and take such other actions as may be necessary or appropriate in aid of execution of the Plan or to restrain interference by any Person or entity with the consummation, implementation, or enforcement of the Plan, the Confirmation Order, or any other order of the Bankruptcy Court;

 

(vi)                            to hear and determine any application to modify the Plan in accordance with section 1127 of the Bankruptcy Code, to remedy any defect or omission or reconcile any inconsistency in the Plan, this Disclosure Statement or any order of the Bankruptcy Court, including the Confirmation Order, in such a manner as may be necessary to carry out the purposes and effects thereof;

 

(vii)                         to hear and determine all applications of retained professionals under sections 330, 331, and 503(b) of the Bankruptcy Code for awards of compensation for services rendered and reimbursement of expenses incurred prior to the Confirmation Date;

 

(viii)                      to hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan, the Confirmation Order, any transactions or payments contemplated thereby, or any agreement, instrument, or other document governing or relating to any of the foregoing;

 

(ix)                             to take any action and issue such orders as may be necessary to construe, enforce, implement, execute, and consummate the Plan or to maintain the integrity of the Plan following consummation;

 

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(x)                                 to hear and determine matters concerning state, local, and federal taxes including, but not limited to, matters proceeding under sections 346, 505, and 1146 of the Bankruptcy Code (including any requests for expedited determinations under section 505(b) of the Bankruptcy Code);

 

(xi)                             to hear and determine any other matters related hereto and not inconsistent with the Bankruptcy Code or title 28 of the United States Code;

 

(xii)                          to hear and determine any rights, Claims, or causes of action held by or accruing to the Debtor pursuant to the Confirmation Order, the Bankruptcy Code, or any federal statute or legal theory;

 

(xiii)                      to hear and determine all disputes involving the existence, scope, and nature of the discharges granted under Section 10.3 of the Plan;

 

(xiv)                      to hear and determine all disputes involving or in any manner implicating the exculpation and release provisions granted under Sections 10.4 through 10.9 of the Plan;

 

(xv)                         to enforce all orders, judgments, injunctions, releases, exculpations, indemnifications and rulings entered into in connection with the Chapter 11 Case; and

 

(xvi)                      to enter an order or final decree closing the Chapter 11 Case.

 

I.                                                   Miscellaneous

 

1.      Payment of Statutory Fees

 

Pursuant to Section 12.1 of the Plan, on the Effective Date, and thereafter as may be required, the Reorganized Debtor will pay all fees payable under section 1930 of chapter 123 of title 28 of the United States Code.

 

2.      Filing of Additional Documents

 

Pursuant to Section 12.2 of the Plan, the Debtor may file such agreements and other documents as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan.

 

3.      Schedules, Exhibits and Plan Supplement Incorporated

 

Pursuant to Section 12.3 of the Plan, the contents of the Plan Supplement and all exhibits and schedules to the Plan, including, without limitation, any exhibits and schedules that are in this Disclosure Statement and incorporated into the Plan by reference, are incorporated into and are a part of the Plan as if fully set forth therein.

 

The Debtor, to the extent necessary to disclose forms of documents not otherwise appended to the Plan, will file the Plan Supplement no later than the date that is ten (10) days

 

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prior to the date on which the Confirmation Hearing is commenced.  Any documents contained in the Plan Supplement are an integral part of the Plan and will be approved by the Bankruptcy Court pursuant to the Confirmation Order.

 

4.      Plan Amendment; Creditor Consents

 

Pursuant to Section 12.4 of the Plan, the Plan may be amended, modified, or supplemented by the Debtor or the Reorganized Debtor in the manner provided for by section 1127 of the Bankruptcy Code or as otherwise permitted by law without additional disclosure pursuant to section 1125 of the Bankruptcy Code; provided, however, that the Debtor or the Reorganized Debtor will not amend or modify the Plan unless GE Capital and the Requisite Consenting Bondholders have consented to such amendment or modification.  Prior to the Effective Date, and subject to the consent of GE Capital and the Requisite Consenting Bondholders, the Debtor may make appropriate technical adjustments and modifications to the Plan without further order or approval of the Bankruptcy Court.  Subject to the right of the Requisite Consenting Bondholders to consent to amendments, modifications, and supplements of or to the Plan as set forth in Section 12.4 of the Plan, holders of Claims that have accepted the Plan will be deemed to have accepted the Plan, as amended, modified, or supplemented, if the proposed amendment, modification, or supplement does not materially and adversely change the treatment of the Claim of such holder; provided, however, that any holders of Claims who were deemed to accept the Plan because such Claims were unimpaired will continue to be deemed to accept the Plan only if, after giving effect to such amendment, modification, or supplement, such Claims continue to be unimpaired.

 

5.      Effectuating Documents and Further Transactions

 

Pursuant to Section 12.5 of the Plan, each of the officers or other authorized persons of the Reorganized Debtor, the general partner of the Reorganized Debtor, or the Operator, as applicable, will be authorized, in accordance with his or her authority under the governing documents of the Reorganized Debtor, to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan.

 

6.      Inconsistency

 

Pursuant to Section 12.6 of the Plan, in the event of any inconsistency among the Plan, the Disclosure Statement, or any exhibit or schedule to the Disclosure Statement, the provisions of the Plan will govern.

 

7.      Section 1125(e) of the Bankruptcy Code

 

Pursuant to Section 12.7 of the Plan, as of the Confirmation Date, the Debtor, and, to the extent applicable, GE Capital, the Informal Bondholder Group, the Existing Bond Indenture Trustee, and the Member, will be deemed to have solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code.  The Plan further provides that Exculpated and Released Parties, the Debtor and the Reorganized Debtor, each in their representative and individual capacities, have participated in good faith and in

 

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compliance with the applicable provisions of the Bankruptcy Code in the offer and issuance of the securities under the Plan.  Accordingly, the Plan provides that such entities and individuals will not be liable at any time for the violation of any applicable law, rule or regulation governing the solicitation of acceptances or rejections of the Plan or the offer and issuance of the securities under the Plan.

 

8.      Compliance with Tax Requirements

 

Pursuant to Section 12.8 of the Plan, in connection with the Plan and all instruments issued in connection therewith and distributed thereunder, the Debtor, the Reorganized Debtor, the Disbursing Agent, or any other party issuing any instrument or making any distribution under the Plan, as applicable, will comply with all applicable withholding and reporting requirements imposed by any federal, state, or local taxing authority, and all distributions under the Plan will be subject to any withholding or reporting requirements.  Notwithstanding the above, each holder of a Claim that is to receive a distribution under the Plan will have the sole and exclusive responsibility for the satisfaction and payment of any tax obligations imposed by any Governmental Unit on account of such distribution, including withholding tax obligations in respect of in-kind (non-Cash) distributions.  Any party issuing any instrument or making any distribution under the Plan has the right, but not the obligation, to refrain from making such distribution until the holder of the Claim on account of which such distribution has been allocated has made arrangements satisfactory to such issuing or disbursing party for payment of any such tax obligations.

 

9.      Section 1145 Exemption

 

Pursuant to Section 12.9 of the Plan and section 1145(a) of the Bankruptcy Code, the New Secured Bonds issued under the Plan will be exempt from registration under section 5 of the Securities Act and any state’s securities law registration requirements and may be resold by holders thereof without registration, unless the holder is an “underwriter” (as defined in section 1145(b)(1) of the Bankruptcy Code) with respect to such securities, in each case, subject to the terms thereof, and applicable securities laws.  For a more detailed discussion of the exemption of the New Secured Bonds from certain securities laws, please see ARTICLE VII of this Disclosure Statement, titled “Exemption from Securities Act Registration.”

 

10.    Exemption from Transfer Taxes

 

Pursuant to Section 12.10 of the Plan and section 1146(a) of the Bankruptcy Code, the issuance, transfer, or exchange of notes or equity securities under or in connection with the Plan, the creation of any mortgage, deed of trust or other security interest, the making or assignment of any lease or sublease, or the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with the Plan, including any merger agreements or agreements of consolidation, deeds, bills of sale or assignments executed in connection with any of the transactions contemplated under the Plan (including the mergers of the Owner Lessors into the Reorganized Debtor and the transfer of certain assets by EME Homer City to the Reorganized Debtor pursuant to Section 6.1 of the Plan) will not be subject to any stamp, real estate transfer, mortgage recording, or other similar tax.

 

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11.    Request for Expedited Determination of Taxes

 

Pursuant to Section 12.11 of the Plan, the Reorganized Debtor may request an expedited determination under section 505(b) of the Bankruptcy Code with respect to tax returns filed, or to be filed, on behalf of the Debtor for any and all taxable periods ending after the Commencement Date through, and including, the Effective Date.

 

12.    Dissolution of any Statutory Committee

 

Pursuant to Section 12.12 of the Plan, any creditor or equity committee appointed pursuant to section 1102 of the Bankruptcy Code in the Chapter 11 Case will be dissolved on the Effective Date.  The Reorganized Debtor will no longer be responsible for paying any fees and expenses incurred by the advisors to any such statutory committees after the Effective Date.

 

13.    Revocation, Withdrawal, or Non-Consummation of the Plan

 

Pursuant to Section 12.13 of the Plan, and subject to obtaining the prior written consent of GE Capital and the Requisite Consenting Bondholders, the Debtor may revoke or withdraw the Plan at any time prior to the Confirmation Date and file other plans of reorganization.  If the Debtor revokes or withdraws the Plan, or if the Confirmation Order is not entered or consummation of the Plan does not occur, (i) the Plan will be null and void in all respects, (ii) any assumption of executory contracts or unexpired leases effected by the Plan, and any document or agreement executed pursuant to the Plan will be deemed null and void, (iii) nothing contained in the Plan, and no acts taken in preparation for consummation of the Plan, will (a) constitute or be deemed to constitute a waiver or release of any Claims by or against, or any Equity Interests in, the Debtor or any other Person or entity, (b) prejudice in any manner the rights of the Debtor or any Person or entity in any further proceedings involving the Debtor or any other Person, or (c) constitute an admission of any sort by the Debtor or any other Person or entity (including, without limitation, with respect to the treatment of the 2001 Transaction), and (iv) any votes to accept the Plan shall not be binding on any holder of any Claims.

 

14.    Severability Provisions in the Plan

 

Pursuant to Section 12.14 of the Plan, if, prior to the entry of the Confirmation Order, any term or provision of the Plan is determined by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court may, at the request of GE Capital and the Requisite Consenting Bondholders, alter and interpret such term or provision to the extent necessary to render it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision shall then be applicable as so altered or interpreted.  Notwithstanding any such holding, alteration or interpretation, the remaining terms and provisions of the Plan will remain in full force and effect and will in no way be affected, impaired or invalidated by such holding, alteration or interpretation.  The Confirmation Order will constitute a judicial determination and will provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms.

 

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15.    Governing Law

 

Pursuant to Section 12.15 of the Plan, to the extent that (i) the Bankruptcy Code or other federal law is applicable or (ii) an exhibit or schedule to the Plan or this Disclosure Statement or any agreement entered into with respect to the restructuring contemplated in the Plan provides otherwise (in which case the governing law specified therein will be applicable to such exhibit, schedule or agreement), the rights, duties, and obligations arising under the Plan will be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflict of laws that would require application of the laws of another jurisdiction.

 

16.    Time

 

Pursuant to Section 12.16 of the Plan, in computing any period of time prescribed or allowed by the Plan, unless otherwise set forth in the Plan or determined by the Bankruptcy Court, the provisions of Bankruptcy Rule 9006(a) will apply.

 

17.    No Admissions

 

Pursuant to Section 12.17 of the Plan, if the Effective Date does not occur, the Plan will be null and void in all respects, and nothing contained in the Plan will (i) constitute a waiver or release of any claims by or against, or any interests in, the Debtor or any other Person, (ii) prejudice in any manner the rights of the Debtor or any other party in interest, or (iii) constitute an admission of any sort by the Debtor or other party in interest (including, without limitation, with respect to the treatment of the 2001 Transaction).

 

18.    Notices

 

Pursuant to Section 12.18 of the Plan, to be effective, all notices, requests or demands to or on the Debtor or the Reorganized Debtor must be (i) in writing, (ii) served by certified mail (return receipt requested), hand delivery, overnight delivery service, first class mail, electronic mail or facsimile transmission, and (iii) unless otherwise expressly provided herein, will be deemed to have been duly given or made when actually delivered or, in the case of notice by electronic mail and facsimile transmission, when received and telephonically confirmed, addressed to the notice parties specified in Section 12.18 of the Plan.

 

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ARTICLE V.

 

POST-CONFIRMATION GOVERNANCE OF THE REORGANIZED DEBTOR

 

Upon consummation of the Plan, the Reorganized Debtor, Homer City Generation L.P., will be a Delaware limited partnership.  The New Limited Partnership Interests in the Reorganized Debtor will be owned by EFSHC and by MetLife, and its general partner will be EFS HC GP, LLC, a subsidiary of GE Capital.  The Reorganized Debtor will be governed by that certain Amended and Restated Agreement of Limited Partnership of Homer City Generation, L.P. (the “Limited Partnership Agreement”).

 

Pursuant to the Limited Partnership Agreement, the general partner will be vested with the power and discretion to operate, manage and control the affairs of the Reorganized Debtor and generally to make decisions affecting the Reorganized Debtor’s affairs, including but limited to:  (i) formulating investment policies and strategies of the Reorganized Debtor, (ii) taking all actions necessary or incidental to the operating of the Facility and (iii) incurring obligations determined to be appropriate in furtherance of the ownership and operation of the Facility.  Certain actions taken by the general partner will also require the affirmative vote of limited partners who have made greater than 66 2/3% of the of the amount of capital contributions made to the Reorganized Debtor and, in certain circumstances, the vote of MetLife, including but not limited to (i) the entry of affiliate agreements that are not entered into in the ordinary course and on arm’s length terms and (ii) the making of certain extraordinary capital expenditures.  Further, certain other material actions will be subject to the consent of the limited partner owned by GE Capital and holders of a majority of partnership interests owned by MetLife and its transferees, including (i) the filing of voluntary bankruptcy proceedings for, or the liquidation, dissolution or winding up of, the Reorganized Debtor, (ii) the acquisition of all or substantially all of the assets or stock of a person or entity that would have the effect of materially changing the business of the Reorganized Debtor, and (iii) changing the purpose or business of the Reorganized Debtor.  Pursuant to the Limited Partnership Agreement, the general partner of the Reorganized Debtor will be entitled to a $3 million annual fee in respect of its management of the Reorganized Debtor.

 

The Reorganized Debtor has entered into the Operations and Maintenance Agreement with the Operator for the operation and maintenance of the Facility, discussed further in ARTICLE II.F.2.iii of this Disclosure Statement, titled “Operations and Maintenance Agreement.”

 

If GE Capital or its Affiliate has paid certain expenses in connection with the Debtor’s Chapter 11 Case or the Debtor’s or Reorganized Debtor’s business, the Reorganized Debtor will be obligated to reimburse GE Capital or its Affiliate.  For a further discussion of these reimbursement obligations, see Sections 2.2 and 2.5 of the Plan, summaries of which appear in ARTICLE IV.A.2 and ARTICLE IV.A.4 of this Disclosure Statement, titled “Treatment of Administrative Expenses” and “Other Expenses of Administration,” respectively.

 

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ARTICLE VI.

 

DESCRIPTION OF THE NEW SECURED BONDS

 

The summary below describes the anticipated principal terms of the New Secured Bonds to be issued in connection with the Plan, which include two series, each to be issued pursuant to the New Secured Bond Indenture:  (i) the 8.137% Senior Secured Notes due 2019 (the “8.137% Bonds”) and (ii) the 8.734% Senior Secured Notes due 2026 (the “8.734% Bonds”).  The New Secured Bond Indenture is attached to the Plan as Exhibit 1.1.63, which itself is attached to this Disclosure Statement as Exhibit “A.”  The summary below is qualified in its entirety by the more detailed provisions set forth in the New Secured Bond Indenture.  Capitalized terms used in this Article VI but not defined herein or elsewhere in this Disclosure Statement shall have the meanings ascribed to them in the New Secured Bond Indenture.

 

The Reorganized Debtor will be the Issuer of the New Secured Bonds.  Holders of the 8.137% Bonds and the 8.734% Bonds will be treated as a single class for all purposes of the New Secured Bond Indenture, including, without limitation, for purposes of voting, consents, waivers, amendments and redemptions.  Holders of the 8.137% Bonds and the 8.734% Bonds will have no right to vote or consent as a separate class on any matter.

 

The New Secured Bonds will only be issued if Class 2, comprised of holders of Existing Bond Claims, votes to accept the Plan.  The Informal Bondholder Group has agreed to support the Plan pursuant to the Plan Support Agreement.  For a more detailed discussion of the Plan Support Agreement, please see ARTICLE II.F.2.v of this Disclosure Statement, titled “The Plan Support Agreement.”

 

A.                Description of Principal, Maturity and Interest

 

A summary of the core economic terms for each series of New Secured Bonds appears below.

 

 

 

8.137% Bonds

 

8.734% Bonds

 

 

 

 

 

Amount of Securities to be Issued on the Effective Date

 

$174 million (plus the amount of accrued interest added to the principal amount of the 8.137% Bonds on the Effective Date, as provided in Section 4.2 of the Plan).

 

$465.976 million plus the amount of accrued interest added to the principal amount of the 8.734% Bonds on the Effective Date, as provided in Section 4.2 of the Plan).

 

 

 

 

 

Maturity

 

The 8.137% Bonds will mature on October 1, 2019.

 

The 8.734% Bonds will mature on October 1, 2026.

 

 

 

 

 

Principal Payments

 

The principal on the 8.137% Bonds will be due and payable in consecutive semi-annual installment payments

 

The principal on the 8.734% Bonds will be due and payable in consecutive semi-annual installment payments commencing on

 

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commencing on October 1, 2014, and ending on the payment date for the final installment of principal as set forth on Exhibit A-1 to the New Secured Bond Indenture, and each such installment of principal will be in the amount set forth on Schedule I of Exhibit A-1 to the New Secured Bond Indenture.

 

October 1, 2014, and ending on the payment date for the final installment of principal as set forth on Exhibit A-2 to the New Secured Bond Indenture, and each such installment of principal will be in the amount set forth on Schedule I of Exhibit A-2 to the New Secured Bond Indenture.

 

 

 

 

 

Interest

 

Interest on the 8.137% Bonds will be payable semiannually in arrears.

 

For any interest period after the most recent interest payment date for the Existing Bonds that occurs before the Effective Date, and through and including April 1, 2014 or such earlier date as provided below (the “PIK Interest Period”), the Reorganized Debtor may, at its option, elect to pay interest on the 8.137% Bonds (i) entirely in cash at a rate of 8.137% per annum or (ii) by issuing PIK Notes at a rate of 8.637% per annum provided that, if the EPC Agreement is amended or modified to delay the Guaranteed Substantial Completion Date for both Units 1 and 2 at the Facilities beyond November 29, 2014 (other than for any delay caused by the EPC Contractor as evidenced by an obligation of the EPC Contractor to pay liquidated damages under the EPC Contract), the PIK Interest rate shall increase to 9.137% per annum, effective on the first day of the period during which such amendment or modification was made. During the PIK Interest Period, the Reorganized Debtor must elect the form of interest payment with respect to each interest period by delivering a notice to the New Secured Bond Indenture Trustee (and to the holders of the 8.137% Bonds as provided in the New Secured Bond Indenture) at least 15 days prior to the beginning of each interest period. In the absence of such an election for any

 

Interest on the 8.734% Bonds will be payable semiannually in arrears.

 

For the PIK Interest Period, the Reorganized Debtor may, at its option, elect to pay interest on the 8.734% Bonds (i) entirely in cash at a rate of 8.734% per annum or (ii) by issuing PIK Notes at a rate of 9.234% per annum provided that, if the EPC Agreement is amended or modified to delay the Guaranteed Substantial Completion Date for both Units 1 and 2 at the Facilities beyond November 29, 2014 (other than for any delay caused by the EPC Contractor as evidenced by an obligation of the EPC Contractor to pay liquidated damages under the EPC Contract), the PIK Interest rate shall increase to 9.734% per annum, effective on the first day of the period during which such amendment or modification was made. During the PIK Interest Period, the Reorganized Debtor must elect the form of interest payment with respect to each interest period by delivering a notice to the New Secured Bond Indenture Trustee (and to the holders of the 8.734% Bonds as provided in the New Secured Bond Indenture) at least 15 days prior to the beginning of each interest period. In the absence of such an election for any interest period, interest on the 8.734% Bonds will be payable in the form of the interest payment for the prior interest period. Beginning October 1, 2014, the Reorganized Debtor will make all interest payments on the 8.734% Bonds entirely in cash. Notwithstanding anything herein to the contrary, the payment of accrued interest in connection with any redemption of 8.734%

 

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interest period, interest on the 8.137% Bonds will be payable in the form of the interest payment for the prior interest period. Beginning October 1, 2014, the Reorganized Debtor will make all interest payments on the 8.137% Bonds entirely in cash. Notwithstanding anything herein to the contrary, the payment of accrued interest in connection with any redemption of 8.137% Bonds pursuant to the Indenture shall be made solely in cash. The PIK Interest Period shall terminate if the EPC Contract terminates, except where such termination is the result of a change in Environmental Laws (as defined in the New Secured Bond Indenture) following which the Facilities are operating at or above the Operating Threshold (as defined in the New Secured Bond Indenture) and in material compliance with Environmental Laws.

 

Bonds pursuant to the Indenture shall be made solely in cash. The PIK Interest Period shall terminate if the EPC Contract terminates, except where such termination is the result of a change in Environmental Laws (as defined in the New Secured Bond Indenture) following which the Facilities are operating at or above the Operating Threshold (as defined in the New Secured Bond Indenture) and in material compliance with Environmental Laws.

 

B.                Description of Shared Provisions

 

Aside from the provisions referenced above, the 8.137% Bonds and 8.734% Bonds will otherwise share identical terms and provisions.  A summary of these provisions appears below.

 

Guarantees

 

The New Secured Bonds will be guaranteed on a senior secured basis by all of the Reorganized Debtor’s Subsidiaries in existence on the Effective Date (if any) and any future wholly-owned Subsidiaries (and its non-wholly owned subsidiaries, unless prohibited by contract, law or any such non-wholly owned subsidiary’s organizational documents) (the “Subsidiary Guarantors”).

 

 

 

Ranking

 

The New Secured Bonds and the related guarantees will be senior secured obligations of the Reorganized Debtor or the applicable Subsidiary Guarantor, as the case may be, and will rank pari passu in right of payment with all existing and future senior obligations of the Reorganized Debtor and the Subsidiary Guarantors, as the case may be. The Indebtedness evidenced by the New Secured Bonds and the related guarantees will be senior in right of payment to all existing and future subordinated indebtedness of the Reorganized Debtor and the Subsidiary Guarantors, as the case may be, and will be effectively subordinated in

 

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right of payment to all existing and future indebtedness of any Subsidiary of the Reorganized Debtor that is not a Subsidiary Guarantor.

 

 

 

Security

 

The New Secured Bonds will be secured by the Collateral (as defined below), which Collateral (other than the Shared Collateral, as defined below), will be secured by a first priority lien.  The New Secured Bonds will be secured by a second priority lien in the Shared Collateral and such security interest will be fully junior, subordinated and subject to the security interest granted under the Working Capital Facility.

 

Collateral” means, for purposes of this subsection only, any and all of the assets and property, whether real, personal or mixed, subject to certain exceptions and subject to liens created pursuant to the Security Agreement, other security agreements, pledge agreements, mortgages, collateral assignments and related agreements, as amended, supplemented, restated, renewed, refunded, replaced, restructured, repaid, refinanced or otherwise modified from time to time, creating the security interests in the Collateral as contemplated by the New Secured Bond Indenture.

 

Shared Collateral” means (a)(i) Accounts (as defined in the Intercreditor Agreement); (ii) Inventory (as defined in the Intercreditor Agreement); (iii) all deposit accounts, securities accounts and commodity accounts into which Proceeds (as defined in the Intercreditor Agreement) from the property and assets described in the foregoing clauses (i) and (ii) are deposited;

 

(b) all Proceeds (including, without limitation, insurance proceeds) of the property and assets described in the foregoing clause (a); and

 

(c) all books and records with respect to the foregoing (including all books, databases, customer lists, and records, whether tangible or electronic, which contain any information relating to any of the items referred to in the preceding clauses (a) and (b));

 

provided that (x) any of the foregoing to the extent constituting Proceeds of real estate, Equipment (as defined in the Intercreditor Agreement), Fixtures (as defined in the Intercreditor Agreement), and intellectual property shall not be Shared Collateral, (y) any Accounts or Inventory constituting Non-Current Capacity Payments (as defined in the Intercreditor Agreement) or constituting Proceeds of Non-Current Capacity Payments shall not be Shared Collateral and (z) any books and records to the extent pertaining to the items in preceding sub clauses (x) and (y) (including all books, databases, customer lists and records, whether tangible or electronic, to the extent pertaining to the items in subclauses (x) and (y)) shall not constitute Shared Collateral.

 

 

 

Optional Redemption

 

Beginning on the Effective Date, the Reorganized Debtor may redeem all or a portion of the 8.137% Bonds and/or a portion of the 8.734% Bonds, at once or over time, after giving the required notice under the New Secured Bond

 

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Indenture. The New Secured Bonds may be redeemed at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest on the New Secured Bonds redeemed, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant payment date), if redeemed during the twelve-month period commencing on, as applicable, the Effective Date or August 2 of the years indicated below:

 

 

 

 

 

 

 

Year

 

Percentage

 

 

 

 

 

 

 

 

 

From the Effective Date through August 1, 2013

 

115.0

%

 

 

August 2, 2013 through August 1, 2014

 

107.5

%

 

 

August 2, 2014 through August 1, 2015

 

103.5

%

 

 

August 2, 2015 and thereafter

 

100.0

%

 

 

 

 

 

 

 

 

 

provided that, notwithstanding the foregoing, if the EPC Contact is amended or modified to delay the Guaranteed Substantial Completion Date (as defined in the New Secured Bond Indenture) for both Units 1 and 2 at the Facilities beyond August 31, 2014 (other than for any delay caused by the EPC Contractor as evidenced by an obligation by the EPC Contractor to pay liquidated damages under the EPC Contract) (a “Delay Amendment”), or Substantial Completion does not occur for both Units 1 and 2 at the Facilities as a result of the termination of the EPC Contract by the EPC Agreement Obligor, the redemption price for each series of the New Secured Bonds shall not be less than 107.5% for any period prior to Substantial Completion; and provided further that after any Delay Amendment, on and after the date that Substantial Completion for both Units 1 and 2 at the Facilities has occurred, the redemption price shall be as set forth above for the applicable periods.

 

 

 

Change of Control

 

Any Change of Control (as defined in the New Secured Bond Indenture) will constitute an event of default under the New Secured Bond Indenture, provided that the Reorganized Debtor may, on a single occasion, designate one transaction or series of related transactions that would otherwise constitute a Change of Control as an “Exempted Change of Control Transaction” which will not constitute a Change of Control under the New Secured Bond Indenture, if:

 

(1) the Working Capital Facility has been or will be repaid and terminated prior to or in connection with the transaction giving rise to the Exempted Change of Control Transaction; and any one of the following conditions in clause (2) below has been met:

 

(2)           (A) the Project Cost Threshold has been reached on or prior to the consummation of the transaction giving rise to the Exempted Change of Control Transaction; the proposed transferee or surviving entity commits to complete the Project on the timeline contemplated by the EPC Contract; and the Reorganized Debtor’s Board of Directors has reasonably determined in good faith that such transferee or surviving entity has the

 

53



 

 

 

reasonable financial wherewithal to do so; or

 

(B) the Project Cost Threshold has been reached on or prior to the consummation of the transaction (or series of related transactions) giving rise to the Exempted Change of Control Transaction and after giving effect to such transaction or transactions, the Permitted Holders shall not have sold, conveyed or otherwise transferred in the aggregate to any Person or group (as set forth above), other than to one or more Permitted Holders, more than 51% of the Voting Stock of the Reorganized Debtor held by them, in the aggregate, as of the Effective Date; provided, that, until Substantial Completion of both Units 1 and 2 of the Facilities, any sale, conveyance or other transfer, in whole or in part, by the Permitted Holders of more than 51% of the Voting Stock of the Reorganized Debtor held by them in the aggregate as of the Effective Date to any Person or group (other than any Permitted Holder) shall constitute a Change of Control under the New Secured Bond Indenture (and, for the avoidance of doubt, after Substantial Completion of both Units 1 and 2 of the Facilities, any sale, conveyance or other transfer by the Permitted Holders at any time and from time to time of all or any portion of the remaining shares of Voting Stock of the Reorganized Debtor held by them shall not constitute a Change of Control under the New Secured Bond Indenture); or

 

(C) Substantial Completion for both Units 1 and 2 of the Facilities have occurred.

 

 

 

Certain Covenants

 

The New Secured Bond Indenture will limit the Reorganized Debtor’s ability and the ability of its subsidiaries, among other things, to:

 

 

 

 

 

 

·

incur additional debt;

 

 

 

 

 

 

·

create liens;

 

 

 

 

 

 

·

transfer or sell assets;

 

 

 

 

 

 

·

enter into transactions with affiliates;

 

 

 

 

 

 

·

create subsidiaries;

 

 

 

 

 

 

·

pay dividends and make other restricted payments;

 

 

 

 

 

 

·

make certain investments;

 

 

 

 

 

 

·

incur restrictions on the payment of dividends or other distributions from subsidiaries;

 

 

 

 

 

 

·

engage in certain business activities and Trading Activities;

 

54



 

 

 

·

merge or consolidate with other companies or transfer all or substantially all of its assets;

 

 

 

 

 

 

·

amend certain contracts and agreements, including the EPC Contract and the Working Capital Facility; and

 

 

 

 

 

 

·

impair security interests.

 

 

 

 

 

 

In addition the New Secured Bond Indenture contains certain affirmative covenants that require the Reorganized Debtor to, among other things, provide specified reporting information, comply with ERISA and other laws, maintain its existence and properties, maintain specified types and amounts of insurance, obtain and maintain a senior secured long-term debt rating for the New Secured Bonds, maintain its intellectual property rights, maintain good and valid title to the Facility and all of its other properties and assets and pledge certain future assets to secure the New Secured Bonds.

 

These covenants contain important exceptions, limitations and qualifications as set forth in the New Secured Bond Indenture.

 

 

 

Events of Default

 

Each of the following constitutes an “Event of Default” under the New Secured Bond Indenture:

 

 

 

 

 

 

(a)

failure to make the payment of any interest on the New Secured Bonds when the same becomes due and payable, and such failure continues for a period of five (5) days;

 

 

 

 

 

 

(b)

failure to make the payment of any principal of, or premium, if any, on any of the New Secured Bonds when the same becomes due and payable, upon acceleration, redemption, optional redemption, required repurchase or otherwise;

 

 

 

 

 

 

(c)

failure to comply with any other covenant or agreement in the New Secured Bond Indenture or the New Secured Bonds (other than a failure that is the subject of the foregoing clause (a) or (b)), and such failure continues uncured for a period of thirty (30) days after written notice is given to the Reorganized Debtor by the New Secured Bond Indenture Trustee or the holders of not less than 25% in aggregate principal amount of the New Secured Bonds then outstanding specifying the default, demanding that it be remedied and stating that such notice is a “Notice of Default”;

 

 

 

 

 

 

(d)

a default under any Indebtedness by the Reorganized Debtor or any Subsidiary that results in acceleration of the maturity of such Indebtedness, or failure to pay any such Indebtedness at maturity, in an aggregate amount greater than $5.0 million or its foreign currency

 

55



 

 

 

 

equivalent at the time;

 

 

 

 

 

 

(e)

any judgment or judgments for the payment of money in an aggregate amount in excess of $5.0 million (or its foreign currency equivalent at the time) that shall be rendered against the Reorganized Debtor or any Subsidiary and that shall not be waived, satisfied or discharged for any period of 30 consecutive days during which a stay of enforcement shall not be in effect;

 

 

 

 

 

 

(f)

certain events of bankruptcy or insolvency with respect to the Reorganized Debtor, any Significant Subsidiary (as defined in the New Secured Bond Indenture) or any group of Subsidiaries, that, when taken together, would constitute a Significant Subsidiary, its general partner or EFSHC;

 

 

 

 

 

 

(g)

(A) any security interest purported to be created by any Notes Security Document (as defined in the New Secured Bond Indenture) with respect to any Collateral, individually or in the aggregate, having a fair market value in excess of $10.0 million, shall cease to be a valid, binding and enforceable, perfected security interest in the securities, assets or properties covered thereby or (B) the Reorganized Debtor or any Subsidiary shall assert, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable and, in the case of any such Subsidiary, the Reorganized Debtor fails to cause such Subsidiary to rescind assertions within 30 days of such assertions; except, in the case of each of (A) and (B), to the extent that any such loss of perfection results from the failure of the New Secured Bond Indenture Trustee or Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Notes Security Documents

 

 

 

 

 

 

(h)

 the failure by the Reorganized Debtor or any Subsidiary party thereto to comply with its other agreements contained in the Notes Security Documents for a period of sixty (60) days after receipt of a Notice of Default;

 

 

 

 

 

 

(i)

the occurrence of a payment default under the EPC Contract, the termination of the EPC Contract or delivery of a notice of intended termination of the EPC Contract, in any case, at any time before the Project Cost Threshold (as defined in the New Secured Bond Indenture) has been reached, provided that if such termination is the result of a change in Environmental Laws following which the Facilities are operating and are reasonably projected to operate in the future at or above the Operating Threshold (as defined in the New Secured Bond Indenture) and in material compliance with Environmental Laws, then no Default or

 

56



 

 

 

 

Event of Default shall be deemed to have occurred;

 

 

 

 

 

 

(j)

(A) the Guarantee of the New Secured Bonds by a Significant Subsidiary (as defined in the New Secured Bond Indenture) ceases to be in full force and effect or (B) any such Guarantor denies or disaffirms in writing its obligations under the New Secured Bond Indenture or any such Guarantee (except, in the case of each of (A) and (B), as contemplated by the terms thereof or by the New Secured Bond Indenture) and such Default continues for a period of ten (10) days, and

 

 

 

 

 

 

(k)

the occurrence of a Change of Control, other than an Exempted Change of Control Transaction.

 

 

 

 

 

 

If any Event of Default occurs and is continuing (other than an Event of Default specified in clause (f) above), the New Secured Bond Indenture Trustee may, and upon written direction of the holders of at least 25% in principal amount of the then outstanding New Secured Bonds shall, declare, by notice in writing to the Reorganized Debtor specifying the respective Event of Default and that such notice is a notice of acceleration (the “Acceleration Notice”), the principal of all of the New Secured Bonds, together with all accrued and unpaid interest, if any, and the premium described below to be due and payable immediately. In the case of an Event of Default arising under clause (f) above, all outstanding New Secured Bonds shall be due and payable immediately without further action or notice (including such Acceleration Notice). The New Secured Bond Indenture Trustee may withhold from holders of the New Secured Bonds notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their best interest. The holders of at least a majority in aggregate principal amount of the New Secured Bonds then outstanding by notice to the New Secured Bond Indenture Trustee, may on behalf of the holders of all of the New Secured Bonds, waive any existing Default or Event of Default, except a continuing Default or Event of Default (1) in the payment of the principal of, premium, if any or interest, on the New Secured Bonds, (2) specified in clause (f) above and (3) in respect of a covenant or provision which under the New Secured Bond Indenture cannot be modified or amended without the consent of the holder of each New Secured Bond affected by such modification or amendment

 

As of the time of any acceleration of the New Secured Bonds, the applicable premium as of such time, as described above under “Optional Redemption”, shall be due and payable, regardless of whether the New Secured Bonds are actually called for redemption (which premium is stipulated and agreed to constitute liquidated damages for the holders for the loss of their investment opportunity and not a penalty), except with respect to any acceleration of the New Secured Bonds resulting from:

 

(i)            a failure by the Reorganized Debtor or any of its Subsidiaries to comply with any covenant or agreement in the New Secured Bond Indenture or

 

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the New Secured Bonds that may be amended or supplemented with the consent of the holders of a majority in aggregate principal amount of the New Secured Bonds then outstanding, voting as a single class, other than those covenants and agreements set forth in:

 

(A)          the Sections of the New Secured Bond Indenture entitled “Incurrence of Additional Indebtedness,” “Guarantees and Contingent Obligations,” Limitations on Restricted Payments,” “EPC Agreement” and “Merger, Consolidation and Sale of Assets”;

 

(B)           the Sections of the New Secured Bond Indenture entitled “Reports,” “Liens,” “Asset Sales,” “Affiliate Transactions,” Business Activities,” Regulatory Status,” “Working Capital Facility” or “Impairment of Security Interest,” to the extent such failure to comply resulted from intentional breach, bad faith or willful misconduct of the Reorganized Debtor or such Subsidiary and such failure continues uncured for more than sixty (60) days after receipt of a Notice of Default;

 

(ii)                                an Event of Default described in clauses (a) or (b) above or a failure by the Reorganized Debtor or any of its Subsidiaries to comply with any covenant or agreement in the New Secured Bond Indenture or the New Secured Bonds not covered by clause (i) above, if (A) such default occurs at such time as $75 million of the Working Capital Facility has been advanced and remains outstanding (including in the form of undrawn letters of credit) and the Reorganized Debtor has a cash balance of less than $50 million (excluding any amounts reserved for Debt Service Obligations), (B) such default may not reasonably have been avoided through the Reorganized Debtor’s exercise of its option to pay PIK Interest, and (C) no less than $325 million in reasonable and documented costs and expenses, including without limitation, any cancellation charges, shall have been incurred and paid by General Electric Capital Corporation or any affiliate thereof or by EFSHC in connection with the installation of the Equipment (as defined in the New Secured Bond Indenture) (including all such reasonable and documented costs and expenses arising in connection with the BOP Agreements), or

 

(iii)                             a voluntary or involuntary filing for bankruptcy protection by or against any entity comprising the Reorganized Debtor as a result of the Reorganized Debtor’s inability to pay its trade payables as they become due at any time after Substantial Completion (as defined in the New Secured Bond Indenture) for both Unit 1 and Unit 2 of the Facility has occurred if such filing occurs at such time as $75 million of the Working Capital Facility has been advanced and remains outstanding (including in the form of undrawn letters of credit) and the Reorganized Debtor has a cash balance of less than $50 million (excluding any amounts reserved for Debt Service Obligations).

 

 

 

Amendments

 

The New Secured Bond Indenture provides that holders of at least a majority in aggregate principal amount of the New Secured Bonds then outstanding, voting

 

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as a single class, may vote to change the Reorganized Debtor’s or any Subsidiary Guarantor’s obligations or your rights under the New Secured Bond Indenture or the New Secured Bonds. However, certain amendments, including changes to the financial terms of the New Secured Bonds, including, but not limited to, changes in the payment of principal, premium, if any, or interest on the New Secured Bonds or in the applicable redemption provisions with respect to the New Secured Bonds, cannot be made unless each holder of the new Secured Bonds affected thereby consents to the change. The Reorganized Debtor and the New Secured Bond Indenture Trustee may amend the New Secured Bond Indenture without the consent of any holder in limited circumstances as set forth in the New Secured Bond Indenture.

 

 

 

Defeasance and Discharge Provisions

 

The New Secured Bond Indenture provides that the Reorganized Debtor may terminate and be fully discharged from its obligations with respect to all outstanding New Secured Bonds or be released from its obligations to comply with the restrictive covenants described above at any time by depositing sufficient amounts of cash in U.S. dollars or non-callable U.S. government securities (or a combination of both) with the New Secured Bond Indenture Trustee to pay the Reorganized Debtor’s obligations under the New Secured Bonds when the New Secured Bonds have become due and payable at maturity or have been called for redemption and by meeting the conditions specified therefor in the New Secured Bond Indenture. In addition, the New Secured Bonds may also be fully discharged when they will become due and payable within one year, including as a result of a redemption notice properly given pursuant to the New Secured Bond Indenture, and by meeting the conditions specified therefor in the New Secured Bond Indenture. For more information, see Articles 8 and 11 of the New Secured Bond Indenture.

 

 

 

Transfer and Listing

 

It is expected that the New Secured Bonds will be issued pursuant to section 1145 of the Bankruptcy Code and will be exempt from the registration requirements of the Securities Act, and state and local securities laws. Accordingly, such securities may be resold without registration under the Securities Act or other federal securities laws pursuant to the exemption provided by Section 4(1) of the Securities Act, unless the holder is an “underwriter” with respect to such securities, as that term is defined in the Bankruptcy Code. For further discussion of these exemptions, please see ARTICLE VII of this Disclosure Statement, titled “Exemption from Securities Act Registration.”

 

The Reorganized Debtor does not intend to list the New Secured Bonds on any securities exchange.

 

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ARTICLE VII.

 

EXEMPTION FROM SECURITIES ACT REGISTRATION

 

A.                                                The Solicitation

 

The Solicitation is being made only to those creditors who are Accredited Investors, which, pursuant to Regulation D of the Securities Act, are defined as:

 

·                  a bank, savings and loan or similar institution, registered broker-dealer, insurance company, registered investment company, business development company, private business development company, or small business investment company;

 

·                  an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, savings and loan association, insurance company, or registered investment adviser makes the investment decisions or if the plan has total assets in excess of $5 million or if a self-directed plan where investment decisions are made solely by accredited investors;

 

·                  a plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees if the plan has total assets in excess of $5 million;

 

·                  a charitable organization, business trust, corporation, or partnership with assets exceeding $5 million that was not formed for the specific purpose of acquiring the securities offered;

 

·                  a director, executive officer, or general partner of the company selling the securities, or a director, executive partner or general partner of a general partner of such company;

 

·                  an entity in which all the equity owners are accredited investors;

 

·                  a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;

 

·                  a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

 

·                  a trust with assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchases are directed by a sophisticated person.

 

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B.                                                Issuance and Resale of the New Secured Bonds Under the Plan

 

Section 1145 of the Bankruptcy Code generally exempts from registration under the Securities Act the offer or sale, under a chapter 11 plan of reorganization, of a security of a debtor, of an affiliate participating in a joint plan with the debtor, or of a successor to a debtor under a plan, if such securities are offered or sold in exchange for a claim against, or equity interest in, such debtor or affiliate.  The surviving entity of the transactions described in Section 6.1 of the Plan will be the Reorganized Debtor and will be a successor to the Debtor.  In reliance upon this exemption, the New Secured Bonds issued to holders of Existing Bond Claims against the Debtor generally will be exempt from the registration requirements of the Securities Act, and state and local securities laws.  Accordingly, such securities may be resold without registration under the Securities Act or other federal securities laws pursuant to the exemption provided by Section 4(a)(1) of the Securities Act, unless the holder is an “underwriter” with respect to such securities, as that term is defined in section 1145(b) of the Bankruptcy Code.  In addition, such securities generally may be resold without registration under state securities laws pursuant to various exemptions provided by the respective laws of the several states.  However, recipients of new securities issued under the Plan are advised to consult with their own legal advisors as to the availability of any such exemption from registration under state law in any given instance and as to any applicable requirements or conditions to such availability.

 

Section 1145(b) of the Bankruptcy Code defines “underwriter” for purposes of the Securities Act as one who (i) purchases a claim with a view to distribution of any security to be received in exchange for the claim other than in ordinary trading transactions, (ii) offers to sell securities issued under a plan for the holders of such securities, (iii) offers to buy securities issued under a plan from persons receiving such securities, if the offer to buy is made with a view to distribution, or (iv) is a control Person of the issuer of the securities.

 

Notwithstanding the foregoing, statutory underwriters may be able to sell securities without registration pursuant to the resale limitations of Rule 144 under the Securities Act which, in effect, permit the resale of securities received by statutory underwriters pursuant to a chapter 11 plan, subject to applicable volume limitations, public information, notice and manner of sale requirements and certain other conditions.  Parties who believe they may be statutory underwriters as defined in section 1145 of the Bankruptcy Code are advised to consult with their own legal advisors as to the availability of the exemption provided by Rule 144.

 

C.                                                Listing

 

The New Secured Bonds will not be publicly traded or listed on any nationally recognized market or exchange.  Accordingly, no assurance can be given that a holder of such securities will be able to sell such securities in the future or as to the price at which any sale may occur.  Upon the issuance of the New Secured Bonds, the Reorganized Debtor will not be required to file reports with the Securities and Exchange Commission.  The Reorganized Debtor, however, will be required, by the terms of the New Secured Bond Indenture, to make certain financial and other information available on a confidential, password-protected website.

 

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D.                                                Legends

 

Unless specifically stated otherwise in the applicable provisions of the New Secured Bond Indenture, New Secured Bonds issued in global form will bear a legend substantially in the form below (except no legend shall be required on New Secured Bonds issued in definitive form):

 

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(A) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

 

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.  UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

ARTICLE VIII.

 

THE VOTING AGENT

 

Epiq has been appointed as Voting Agent for the Solicitation of votes on the Plan.  Questions and requests for assistance, and all correspondence in connection with the Solicitation of votes on the Plan, or requests for additional Ballots and any other required documents, may be directed to the Voting Agent at:

 

Epiq Bankruptcy Solutions, LLC

757 Third Avenue, Third Floor

New York, New York 10017

(646) 282-2400 or tabulation@epiqsystems.com

 

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Ballots are to be sent to the Voting Agent at the physical address set forth above.  Ballots received by email, facsimile or other electronic means will not be counted.

 

Subject to the terms and conditions set forth in the Voting Agent’s agreement with the Debtor, the Debtor has agreed to pay the Voting Agent customary fees for its services in connection with the Solicitation of votes on the Plan and the Voting Agent has been provided with a retainer.  The Debtor has also agreed to reimburse the Voting Agent for its reasonable out-of-pocket expenses and to indemnify it against certain liabilities.

 

ARTICLE IX.

 

RISK FACTORS

 

HOLDERS OF CLAIMS AGAINST THE DEBTOR SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR REFERRED TO HEREIN BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN.  THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.

 

A.                                                Certain Risks Relating to the Chapter 11 Case

 

1.                   The Debtor may object to the amount or priority status of a Claim

 

Although holders of Claims are not required to file proofs of claim in the Chapter 11 Case, the Debtor reserves the right to object to any proof of claim filed by or on behalf of a holder of a Claim, except where indicated otherwise in the Plan and Plan Support Agreement.  The distribution estimates set forth in this Disclosure Statement cannot be relied on by any holder of any Claims or Equity Interest whose Claim or Equity Interest is or may be subject to an objection.  Any such holder may not receive its specified share of the estimated distributions described in this Disclosure Statement.  The Debtor, however, will not object to the Existing Bond Claims in the amounts set forth in section 4.2 of the Plan.

 

2.                   In certain instances, any chapter 11 case may be converted to a case under chapter 7 of the Bankruptcy Code

 

If no plan can be confirmed, or if the Bankruptcy Court otherwise finds that it would be in the best interest of creditors and/or the Debtor, the Debtor’s Chapter 11 Case may be converted to a case under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate the Debtor’s assets for distribution in accordance with the priorities established by the Bankruptcy Code.  The Debtor believes that liquidation under chapter 7 would result in smaller distributions being made to the Debtor’s creditors than those provided for in the Plan, as described further in ARTICLE XII.B of this Disclosure Statement, titled “Liquidation under Chapter 7 or State Law.”  Further, conversion of the Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code would entitle the Requisite Consenting Bondholders to terminate the Plan Support Agreement and, if the Plan Support Agreement

 

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terminates before the Effective Date, the Existing Bond Indenture Trustee may instruct the Member to dismiss the Chapter 11 Case.

 

3.                   The Bankruptcy Court may not confirm the Plan

 

Although the Debtor believes that the Plan will satisfy all requirements necessary for confirmation under the Bankruptcy Code, there can be no assurance that the Bankruptcy Court will reach the same conclusion.  Moreover, there can be no assurance that modifications of the Plan will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes.  In the event that the Bankruptcy Court refuses to confirm the Plan, the Debtor may be required to seek an alternative restructuring of its obligations to its creditors and equity holders.  There can be no assurance that the terms of any such alternative restructuring would be similar to or as favorable to the Debtor’s stakeholders as those proposed in the Plan.

 

The confirmation of the Plan is subject to certain conditions and requirements of the Bankruptcy Code.  The Bankruptcy Court may determine that one or more of those requirements is not satisfied.  For example, the Bankruptcy Court might determine that the Plan is not “feasible” pursuant to section 1129(a)(11) of the Bankruptcy Code.  For the Plan to be feasible, the Debtor must establish that the confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization of the Debtor, or any successor of the Debtor, under the Plan unless such liquidation or reorganization is proposed in the Plan.  While the feasibility requirement is not rigorous, it does require the Debtor to put forth concrete evidence indicating that it has a reasonable likelihood of meeting its obligations under the Plan and remaining a viable entity.

 

In most instances, a proposed disclosure statement is filed with and approved by the Bankruptcy Court, and votes to accept or reject the plan are solicited after the filing of a petition commencing a chapter 11 case.  Where a debtor proposes a prepackaged plan, as the Debtor is here, the debtor may solicit votes prior to the petition date in accordance with section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b).  The Bankruptcy Court could conclude, however, that this Disclosure Statement does not meet the disclosure requirements set forth in the Bankruptcy Code.

 

With regard to solicitation of votes prior to the commencement of a bankruptcy case, if the Bankruptcy Court concludes that the requirements of section 1126(b) of the Bankruptcy Code and/or Bankruptcy Rule 3018(b) have not been met, then the Bankruptcy Court could deem such votes invalid, and the Plan would not be confirmed without a resolicitation of votes to accept or reject the Plan.  While the Debtor believes that the requirements of section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018 will be met, the Bankruptcy Court may not reach the same conclusion.  While the Debtor believes that the risk is low, it is also possible that the United States Trustee or other parties in interest could also move the Bankruptcy Court to “designate” the votes of the Informal Bondholder Group pursuant to section 1126(e) of the Bankruptcy Code, which permits a bankruptcy court to designate—and nullify for purposes of determining acceptances and rejections of the subject plan—an entity whose acceptance or rejection of a plan was not in good faith or was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code.

 

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If the Bankruptcy Court were to find any of these deficiencies, the Debtor could be required to restart the process of filing another plan and disclosure statement by (i) seeking Bankruptcy Court approval of a disclosure statement, (ii) soliciting votes from classes of debt and equity holders, and (iii) seeking Bankruptcy Court confirmation of the newly proposed plan of reorganization.  Further, denial of confirmation of the Plan by the Bankruptcy Court could give rise to a right of GE Capital or the Requisite Consenting Bondholders to terminate the Plan Support Agreement and, if the Plan Support Agreement terminates before the Effective Date, the Requisite Consenting Bondholders may instruct the Member to dismiss the Chapter 11 Case.  If this occurs, confirmation of the Plan would be delayed and possibly jeopardized.  Additionally, should the Plan fail to be approved, confirmed, or consummated, parties with an interest against the Debtor may be in a position to propose alternative plans of reorganization.  Therefore, any failure to confirm the Plan would likely entail significantly greater risk of delay, expense and uncertainty, which would likely have a material adverse effect upon the Debtor’s financial condition.

 

4.                   The Chapter 11 Case may continue longer than expected or the Debtor may fail to meet all conditions precedent to effectiveness of the Plan

 

Although the Debtor believes that the Effective Date may occur very shortly after the Confirmation Date, there can be no assurance as to such timing.  Moreover, if the conditions precedent to the Effective Date, including the entry of a Confirmation Order as a Final Order reasonably satisfactory to GE Capital and the Requisite Consenting Bondholders and the closing of the Master Transaction Agreement, have not occurred, the Effective Date may be delayed or may not occur.

 

5.                   The Debtor cannot predict the amount of time needed in bankruptcy to implement the Plan, and a lengthy bankruptcy case could impair the prospect for reorganization on the terms contained in the Plan and possibly provide an opportunity for other plans to be proposed

 

Although the Debtor estimates that the duration of the Chapter 11 Case will be approximately 30 to 45 days, it is impossible to predict with certainty the amount of time needed in bankruptcy, and the Debtor cannot be certain that the Plan will be confirmed in a relatively short period of time, or at all.  Moreover, time limitations exist for which the Debtor has an exclusive right to file a plan before other proponents can propose and file their own plan.

 

A lengthy Chapter 11 Case would also involve additional expenses and, if the Chapter 11 Case continues for over 75 days without confirmation of the Plan, would enable GE Capital or the Requisite Consenting Bondholders to terminate the Plan Support Agreement.  Moreover, pursuant to Section 9.3 of the Plan, if the Chapter 11 Case continues beyond [February 20], 2013 (or, in certain circumstances pursuant to Section 9.3 of the Plan, [March 22], 2013), the Debtor will withdraw the Plan unless such section is waived or modified by GE Capital and the Requisite Consenting Bondholders.  The disruption that a lengthy Chapter 11 Case would inflict upon the business the Reorganized Debtor is acquiring would increase with the length of time it takes to complete the proceeding.

 

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If the Debtor is unable to obtain confirmation of the Plan on a timely basis, because of a challenge to the Plan or a failure to satisfy the conditions to the effectiveness of the Plan, the Debtor may be forced to remain in bankruptcy for an extended period while trying to develop a different reorganization plan that can be confirmed.

 

6.                   The Debtor may seek to amend, waive, modify or withdraw the Plan at any time prior to the Confirmation Date

 

  The Debtor reserves the right, prior to confirmation or substantial consummation of the Plan, subject to the provisions of section 1127 of the Bankruptcy Code, Rule 3019 of the Bankruptcy Rules, the Plan Support Agreement, and the Plan, to amend the terms of the Plan or waive any conditions thereto, if and to the extent such amendments or waivers are necessary or desirable to consummate the Plan.  The potential impact of any such amendment or waiver on the holders of Claims and Equity Interests cannot presently be foreseen, but may include a change in the economic impact of the Plan on some or all of the Classes or a change in the relative rights of such Classes.  All holders of Claims and Equity Interests will receive notice of such amendments or waivers required by applicable law and the Bankruptcy Court.  If, after receiving sufficient acceptances but prior to confirmation of the Plan, the Debtor seeks to modify the Plan, the previously solicited acceptances will be valid only if (i) all Classes of adversely affected creditors and interest holders accept the modification in writing, or (ii) the Bankruptcy Court determines, after notice to designated parties, that such modification was de minimis or purely technical or otherwise did not materially, adversely change the treatment of holders of accepting Claims and Equity Interests.

 

B.                                                Certain Risk Factors Relating to the New Secured Bonds

 

If any of the risk factors described in this subsection B were to occur, the business, operations and financial condition of the Reorganized Debtor would likely be negatively affected, perhaps materially.

 

1.                   Restrictions in the New Secured Bond Indenture and the Working Capital Facility will limit or prohibit the Reorganized Debtor from entering into some transactions that the Reorganized Debtor otherwise might enter into and may affect its operating results

 

The New Secured Bond Indenture will contain covenants restricting the Reorganized Debtor’s ability to enter into specified transactions and to engage in specified business activities, as well as restrictive financing and investment covenants.  These restrictions could affect, and in some cases significantly limit or prohibit, the Reorganized Debtor’s ability to, among other things, merge, consolidate or sell its assets, create liens on its properties or assets, enter into non-permitted trading activities, enter into transactions with its Affiliates, incur indebtedness, make restricted payments, make capital expenditures, own subsidiaries, liquidate or dissolve, or engage in non-permitted business activities, any or all of which restrictions could adversely affect the Reorganized Debtor’s ability to capitalize on business opportunities and could negatively affect its operating results.  The ability of the Reorganized Debtor to comply with such covenants may be affected by events beyond its control.  If the Reorganized Debtor defaults under the New Secured Bond Indenture or the Working Capital Facility or any of its

 

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other indebtedness, all of the outstanding borrowings, accrued interest and fees under such documents could be declared due and payable.  If that were to occur, there can be no assurance that the Reorganized Debtor would have sufficient liquidity to repay or refinance this indebtedness or any of its other debt.  For a further discussion of these covenants, see ARTICLE VI of this Disclosure Statement, titled “Description of the New Secured Bonds.”

 

2.                   The Reorganized Debtor will have a significant amount of indebtedness, which may adversely affect its cash flow, its ability to operate its business and its ability to satisfy its obligations under the New Secured Bonds and the Working Capital Facility

 

As of the Effective Date, the Reorganized Debtor is expected to have a significant amount of indebtedness, which is expected to consist of $639.976 million of indebtedness outstanding under the New Secured Bond Indenture (plus the amount of accrued interest added to the principal amount of the New Secured Bonds on the Effective Date, as provided in Section 4.2 of the Plan) and up to $75 million potentially available for borrowing under the Working Capital Facility (before giving effect to any outstanding letters of credit), subject to meeting customary borrowing conditions.  The Reorganized Debtor’s significant amount of indebtedness could have important consequences for holders of the New Secured Bonds.  For example it could:

 

·                  increase the Reorganized Debtor’s vulnerability to adverse economic, industry or competitive developments;

 

·                  result in an event of default if the Reorganized Debtor fails to satisfy its obligations with respect to the New Secured Bonds, the Working Capital Facility or any other existing or future indebtedness permitted under the New Secured Bond Indenture or fails to comply with the restrictive covenants contained in the New Secured Bond Indenture or the Working Capital Facility or any other instrument governing its existing or future indebtedness, which event of default could result in all of its indebtedness becoming immediately due and payable and could permit the holders of the New Secured Bonds, the lenders under the Working Capital Facility or other creditors to foreclose on the assets securing their respective indebtedness;

 

·                  require a substantial portion of cash flow from operations to be dedicated to the payment of principal of and interest on the New Secured Bonds, the Working Capital Facility and any other existing or future indebtedness permitted under the New Secured Bond Indenture, thereby reducing its ability to use its cash flow to fund its operations, capital expenditures and future business opportunities;

 

·                  restrict it from making strategic acquisitions or causing it to make non-strategic divestitures;

 

·                  limit its ability to service its indebtedness, including the New Secured Bonds and the loans outstanding under the Working Capital Facility;

 

 

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·                  limit its ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and

 

·                  limit its flexibility in planning for, or reacting to, changes in its business or the industry in which it operates, placing it at competitive disadvantage compared to its competitors who are less highly leveraged and who therefore may be able to take advantage of opportunities that its leverage prevents it from exploring.

 

The occurrence of any one of these events could have a material adverse effect on the Reorganized Debtor’s business, financial condition, results of operations, prospects or ability to satisfy its obligations under the New Secured Bonds and the Working Capital Facility.

 

3.                   The Reorganized Debtor may not be able to generate sufficient cash to service all of its indebtedness, including the New Secured Bonds, the Working Capital Facility and any other existing or future indebtedness permitted under the New Secured Bond Indenture, and it may be forced to take other actions to satisfy its obligations under the New Secured Bonds, the Working Capital Facility and its other indebtedness, which may be unsuccessful

 

The Reorganized Debtor’s ability to make scheduled interest and principal payments or to refinance its debt obligations depends on its financial and operating performance, which is subject to prevailing economic, business, legislative, regulatory and competitive conditions and to certain financial, business and other factors beyond its control.  The Reorganized Debtor cannot assure that it will maintain a level of cash flows from operating activities sufficient to permit it to pay the principal of, premium, if any, and interest on the New Secured Bonds, the Working Capital Facility and any other existing or future indebtedness permitted under the New Secured Bond Indenture.  If the Reorganized Debtor’s cash flows and capital resources are insufficient to fund its debt service obligations, it may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance its indebtedness, including the New Secured Bonds and the Working Capital Facility.

 

The Reorganized Debtor cannot assure that it would be able to take any of these actions, that these actions would be successful and permit the Reorganized Debtor to meet its scheduled debt service obligations or that these actions would be permitted under the terms of the New Secured Bond Indenture, the Working Capital Facility or any other instrument governing the Reorganized Debtor’s existing or future indebtedness.  If the Reorganized Debtor faces substantial liquidity problems, it might be required to dispose of material assets or operations to meet its debt service and other obligations.  The New Secured Bond Indenture and the Working Capital Facility will restrict the Reorganized Debtor’s ability to dispose of assets and use the proceeds from such disposition.  The Reorganized Debtor may not be able to consummate those dispositions and, in the event the consummation of any such disposition is permitted, the proceeds thereof may not be adequate to meet any debt service obligations then due.

 

If the Reorganized Debtor cannot make scheduled payments on the New Secured Bonds, it will be in default and, as a result, holders of the New Secured Bonds and lenders under the Working Capital Facility could declare all outstanding principal of, premium, if any, and

 

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interest on the New Secured Bonds and the loans outstanding under the Working Capital Facility, respectively, to be due and payable and, subject to the Intercreditor Agreement, the New Secured Bond Collateral Agent and the agent under the Working Capital Facility could foreclose against the assets securing the New Secured Bonds and the loans outstanding under the Working Capital Facility, respectively, and the Reorganized Debtor could be forced into bankruptcy or liquidation, which could result in holders of New Secured Bonds and lenders under the Working Capital Facility losing some or all of their investment in the New Secured Bonds and the loans outstanding under the Working Capital Facility.

 

4.                   New Secured Bonds may be structurally subordinated to all indebtedness of any future non-wholly owned subsidiaries

 

The New Secured Bond Indenture requires the Reorganized Debtor’s wholly-owned subsidiaries and non-wholly owned subsidiaries, if any, to guarantee payment of the New Secured Bonds and grant to the Collateral Agent, for the benefit of the holders of New Secured Bonds, a perfected first priority security interest, subject to the Intercreditor Agreement, in the Collateral (other than the Shared Collateral) of such subsidiaries, subject to Permitted Liens (as defined in the New Secured Bond Indenture).  However, the New Secured Bond Indenture does not require any non-wholly owned subsidiaries that are prohibited by contract, law or their respective organizational documents from guaranteeing the New Secured Bonds and pledging their respective assets to guarantee the New Secured Bonds or pledge their assets as collateral to secure the New Secured Bonds.  Although the Reorganized Debtor does not currently have any subsidiaries, it cannot assure that it will not in the future create, acquire or make an investment in one or more non-wholly owned subsidiaries in compliance with the terms of the New Secured Bond Indenture.

 

In the event that the Reorganized Debtor creates, acquires or makes an investment in one or more non-wholly owned subsidiaries that are prohibited by contract, law or their respective organizational documents from guaranteeing the New Secured Bonds and pledging their respective assets, holders of New Secured Bonds will not have any claim as a creditor against such non-wholly owned subsidiaries.  Indebtedness and other liabilities, including trade payables, whether secured or unsecured, of such non-wholly owned subsidiaries will be effectively senior to the claims of holders of New Secured Bonds against such non-wholly owned subsidiaries and the Reorganized Debtor’s claims against those subsidiaries as the direct or indirect owner of their equity interests.

 

5.                   If an active trading market does not develop for the New Secured Bonds, holders of New Secured Bonds may be unable to sell the New Secured Bonds or to sell them at a price that holders deem sufficient

 

The New Secured Bonds are new issues of securities for which there is currently no public trading market.  The Reorganized Debtor does not intend to list the New Secured Bonds on any national securities exchange or automated quotation system.  In addition, the liquidity of any trading market for the New Secured Bonds, and the market price quoted for the New Secured Bonds, may be adversely affected by changes in the overall market for those securities and by changes in the Reorganized Debtor’s financial performance or prospects or in

 

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the prospects of similar companies generally. The Reorganized Debtor cannot give any assurance as to:

 

·                  the liquidity of any trading market that may develop;

 

·                  the ability of holders to sell their New Secured Bonds; or

 

·                  the price at which holders would be able to sell their New Secured Bonds.

 

Even if a trading market develops, the New Secured Bonds may trade at higher or lower prices than the principal amount depending on many factors, including:

 

·                  prevailing interest rates;

 

·                  the number of holders of the New Secured Bonds;

 

·                  the interest of securities dealers in making a market for the New Secured Bonds;

 

·                  the market for similar bonds; and

 

·                  the Reorganized Debtor’s financial performance.

 

As a result, the Reorganized Debtor cannot assure that an active trading market will develop for the New Secured Bonds.

 

6.                   The ratings of the New Secured Bonds do not address market price or suitability for a particular investor; ratings are subject to change

 

Holders of New Secured Bonds should consider that the ratings of the New Secured Bonds will not constitute a recommendation to purchase, hold or sell New Secured Bonds because a rating does not address market price or suitability for a particular investor.  There can be no assurance that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency.

 

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7.                   It may be difficult to realize the value of the collateral supporting the New Secured Bonds, and the proceeds from the collateral may be insufficient to repay the New Secured Bonds

 

The Reorganized Debtor will issue the New Secured Bonds in exchange for the Existing Bonds, and will enter into the New Secured Bond Indenture and related agreements.  The New Secured Bonds will be secured by a collateral package.  For a more detailed description of the collateral securing the New Secured Bonds see ARTICLE VI of this Disclosure Statement, titled “Description of the New Secured Bonds.”  If a default occurs with respect to the New Secured Bonds, the Reorganized Debtor cannot assure that an exercise of remedies by the New Secured Bond Indenture Trustee, acting on behalf of the holders of the New Secured Bonds, including foreclosure on the collateral securing the New Secured Bonds, would provide sufficient funds to repay all amounts due on the New Secured Bonds.

 

8.                   The Intercreditor Agreement in connection with the New Secured Bond Indenture and Working Capital Facility may limit the rights of the holders of the New Secured Bonds and their control with respect to the collateral securing the New Secured Bonds

 

The rights of the holders of New Secured Bonds with respect to the collateral securing the Working Capital Facility on a first priority basis may be substantially limited pursuant to the terms of the Intercreditor Agreement in certain cases.  Under the Intercreditor Agreement, if amounts or commitments in excess of $50 million remain outstanding under the Working Capital Facility and the agent under the Working Capital Facility is not an Affiliate of the Reorganized Debtor, actions taken in respect of collateral securing the obligations under the Working Capital Facility on a first priority basis, including the ability to cause the commencement of enforcement proceedings against such collateral and to control the conduct of these proceedings, will be at the sole direction of the holders of the obligations secured by the first priority liens, subject to certain limitations.  As a result, the New Secured Bond Indenture Trustee, on behalf of the holders of the New Secured Bonds, may not have the ability to control, direct or meaningfully influence these actions, even if the rights of the holders of the New Secured Bonds are adversely affected.

 

9.      Certain of the Reorganized Debtor’s assets will be subject to senior priority security interests on collateral that will secure the New Secured Bonds on a junior basis.  Therefore, holders’ ability to receive payments on the New Secured Bonds will be subject to the prior satisfaction of all such obligations, to the extent of the value of such collateral

 

The New Secured Bonds and any potential guarantees under the New Secured Bond Indenture will be secured, subject to certain exceptions and permitted liens, on a first priority basis, together with any other permitted fixed asset indebtedness secured equally and ratably, by security interests in all existing and after-acquired intellectual property rights, equipment, fixtures and substantially all other assets from time to time owned by the Reorganized Debtor or any Subsidiary Guarantors, other than the Shared Collateral, and on a second priority basis by security interests in substantially all of the Shared Collateral from time to time owned by the Reorganized Debtor or any Subsidiary Guarantors.  For a description of the

 

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Shared Collateral, see ARTICLE VI of this Disclosure Statement, titled “Description of the New Secured Bonds.”

 

In the event of a foreclosure on the Shared Collateral (or a distribution in respect thereof in a bankruptcy or insolvency proceeding), the proceeds from the Shared Collateral on which the New Secured Bonds have a second priority lien may not be sufficient to satisfy the New Secured Bonds because such proceeds would, under the Intercreditor Agreement, first be applied to satisfy obligations under the Working Capital Facility. Only after all of the Reorganized Debtor’s obligations under the Working Capital Facility have been satisfied will proceeds from the Shared Collateral on which the New Secured Bonds have a second priority lien be applied to satisfy obligations under the New Secured Bonds.  To prevent foreclosure, the Reorganized Debtor may be motivated to commence voluntary bankruptcy proceedings, or the holders of the New Secured Bonds and/or various other interested persons may be motivated to institute bankruptcy proceedings against the Reorganized Debtor.  The commencement of bankruptcy proceedings would expose the holders of the New Secured Bonds to additional risks, including additional restrictions on exercising rights against collateral, as discussed further in the risk factor that appears at ARTICLE IX.B.14 of this Disclosure Statement, titled “In the event that the Reorganized Debtor declares bankruptcy, the ability of the holders of the New Secured Bonds to realize upon the collateral will be subject to applicable bankruptcy law limitations.”

 

Furthermore, the collateral securing the New Secured Bonds will be subject to liens permitted under the terms of the credit agreement governing the Working Capital Facility and the New Secured Bond Indenture.  The existence of any permitted liens (whether senior to or on parity with the liens securing the New Secured Bonds) could adversely affect the value of the collateral securing the New Secured Bonds, as well as the ability of the trustee to realize or foreclose on such collateral.

 

Pursuant to the New Secured Bond Indenture Security Agreement, certain assets are excluded from the collateral securing the New Secured Bonds.  To the extent that the claims of the holders of the New Secured Bonds exceed the value of the assets securing the New Secured Bonds and other liabilities, those claims will rank equally with the claims of the holders of outstanding unsecured indebtedness and other obligations ranking pari passu with the New Secured Bonds.  As a result, if the value of the assets securing the New Secured Bonds and other liabilities is less than the value of the claims of the holders of the New Secured Bonds and other liabilities, those claims may not be satisfied in full.

 

The collateral securing the New Secured Bonds may be subject to exceptions, defects, encumbrances, liens and other imperfections.  Further, the Reorganized Debtor will not have conducted appraisals of all of its or any Subsidiary Guarantors’ assets constituting collateral securing the New Secured Bonds to determine if the value of the collateral upon foreclosure or liquidation equals or exceeds the amount of the New Secured Bonds or such other obligations secured by the collateral.  Accordingly, the Reorganized Debtor cannot assure that the proceeds from the sale of any collateral would be sufficient to repay holders of New Secured Bonds all amounts owed under the New Secured Bonds.

 

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The fair market value of the collateral securing the New Secured Bonds  is subject to fluctuations based on factors that include, among others, industry conditions, the ability to sell the collateral in an orderly sale, general economic conditions, the availability of buyers, the Reorganized Debtor’s ability to implement its business strategy, and similar factors.  The amount received upon a sale of the collateral would be dependent on numerous factors, including but not limited to the actual fair market value of the collateral at such time and the timing and the manner of the sale.  By its nature, portions of the collateral may be illiquid and may have no readily ascertainable market value.  There also can be no assurance that the collateral will be saleable, and, even if saleable, the timing of its liquidation would be uncertain.

 

Accordingly, there may not be sufficient collateral to pay all of the amounts due on the New Secured Bonds.  Any claim for the difference between the amount, if any, realized by holders of the New Secured Bonds from the sale of the collateral securing the New Secured Bonds and the obligations under the New Secured Bonds will rank equally in right of payment with all of the Reorganized Debtor’s other unsecured unsubordinated indebtedness and other obligations, including trade payables.

 

With respect to some of the collateral, the trustee’s security interest and ability to foreclose will also be limited by the need to meet certain requirements, such as obtaining third-party consents and making additional filings.  If the Reorganized Debtor is unable to obtain these consents or make these filings, the security interests may be invalid and the holders will not be entitled to the collateral or any recovery with respect thereto.  The Reorganized Debtor cannot assure that any such required consents can be obtained on a timely basis or at all.  These requirements may limit the number of potential bidders for certain collateral in any foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the collateral.  Therefore, the practical value of realizing on the collateral may, without the appropriate consents and filings, be limited.

 

10.            The rights of holders of New Secured Bonds in the collateral may be adversely affected by the failure to perfect security interests in the collateral and other issues generally associated with the realization of security interests in the collateral

 

Applicable law provides that a security interest in certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party.  The liens on all of the collateral securing the New Secured Bonds may not be perfected prior to the Effective Date or, in some cases, at all.  The security documents associated with the New Secured Bonds will contain certain exclusions from perfection requirements and therefore no attempt will be made to obtain the security interests in that portion of the collateral.  To the extent certain security interests cannot be granted and/or perfected on the closing date, a covenant in the New Secured Bond Indenture will require the Reorganized Debtor to do or cause to be done all things that may be reasonably required, or that the New Secured Bond Indenture Trustee from time to time may reasonably request, to assure and confirm that an enforceable security interest is granted to the trustee in such collateral promptly following the Effective Date and to take certain actions, if required under the security documents, in order to perfect such security interest.  The Reorganized Debtor cannot assure that it will be able to perfect the security interests on a timely basis, and its failure to do so may result in a default under the New Secured Bond Indenture, the credit agreement governing the Working

 

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Capital Facility, and/or the related security documents.  To the extent security interests are perfected following the Effective Date, those security interests would remain at risk of having been granted within 90 days of a future bankruptcy filing (in which case such interests might be avoided as a preferential transfer by a trustee in bankruptcy) even after the security interests perfected on the Effective Date were no longer subject to such risk.

 

In addition, applicable law provides that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified.  The Reorganized Debtor cannot assure that the Reorganized Debtor, the New Secured Bond Indenture Trustee or the agent under the Working Capital Facility will monitor, or that the Reorganized Debtor or any Subsidiary Guarantors will inform such trustee or agent of, the future acquisition of property and rights that constitute collateral, or that the necessary action will be taken to properly perfect the security interest in such after-acquired collateral.  The New Secured Bond Indenture Trustee and the agent under the Working Capital Facility will have no obligation to monitor the acquisition of additional property or rights that constitute collateral or the perfection of any security interest.

 

The security interest of the New Secured Bond Indenture Trustee will be subject to practical challenges generally associated with the realization of security interests in the collateral.  For example, the New Secured Bond Indenture Trustee may need to obtain the consent of a third party to obtain or enforce a security interest in an asset.  The Reorganized Debtor cannot assure that the New Secured Bond Indenture Trustee will be able to obtain any such consent or that the consents of any third parties will be given when required to facilitate a foreclosure on such assets.  As a result, the New Secured Bond Indenture Trustee may not have the ability to foreclose upon those assets and the value of the collateral may significantly decrease.

 

11.            The Reorganized Debtor will, in most cases, have control over the collateral securing the New Secured Bonds

 

The security documents associated with the New Secured Bonds generally will allow the Reorganized Debtor and any Subsidiary Guarantors to remain in possession of, to retain exclusive control over, to freely operate and to collect, invest and dispose of any income from, the collateral securing the New Secured Bonds.  These rights may adversely affect the value of the collateral securing the New Secured Bonds at any time.

 

12.            There are circumstances other than repayment or discharge of the New Secured Bonds under which the collateral securing the New Secured Bonds and guarantees will be released automatically, without the consent of the holders of New Secured Bonds or the consent of the New Secured Bond Indenture Trustee

 

Under various circumstances, all or a portion of the collateral may be released, including:

 

·                  to enable the sale, transfer or other disposal of the collateral in a transaction not prohibited under the New Secured Bond Indenture or the credit agreement governing the

 

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Working Capital Facility, including the sale of any entity in its entirety that owns or holds the collateral; and

 

·                  with respect to collateral held by any Subsidiary Guarantor, upon the release of such Subsidiary Guarantor from its guarantee.

 

In addition, the guarantee of any Subsidiary Guarantor will be released in connection with a sale of any Subsidiary Guarantor in a transaction not prohibited by the indenture governing the New Secured Bonds.

 

13.            The collateral is subject to casualty risks

 

The New Secured Bond Indenture and the credit agreement governing the Working Capital Facility will require the Reorganized Debtor and any Subsidiary Guarantors to maintain adequate insurance or otherwise insure against risks to the extent customary with companies in the same or similar business operating in the same or similar locations.  There are, however, certain losses that may be either uninsurable or not economically insurable, in whole or in part.  As a result, the Reorganized Debtor cannot assure that the insurance proceeds will compensate it fully for its losses.  If there is a total or partial loss of any of the collateral securing the New Secured Bonds, the Reorganized Debtor cannot assure that any insurance proceeds received by it will be sufficient to satisfy all the secured obligations, including the New Secured Bonds.

 

In the event of a total or partial loss to the Facility, certain collateral may not be easily replaced.  Accordingly, even though there may be insurance coverage, there may be significant delays in obtaining replacement collateral.

 

14.            In the event that the Reorganized Debtor declares bankruptcy, the ability of the holders of the New Secured Bonds to realize upon the collateral will be subject to applicable bankruptcy law limitations

 

The ability of holders of New Secured Bonds to realize upon the collateral will be subject to certain bankruptcy law limitations in the event of the Reorganized Debtor’s bankruptcy or a bankruptcy of any Subsidiary Guarantors.  Under applicable federal bankruptcy laws, upon the commencement of a bankruptcy case, an automatic stay goes into effect which, among other things, stays:

 

·                  the commencement or continuation of any action or proceeding against the debtor that was or could have been commenced before the commencement of the bankruptcy case to recover a claim against the debtor that arose before the commencement of the bankruptcy case;

 

·                  any act to obtain possession of, or control over, property of the bankruptcy estate or the debtor;

 

·                  any act to create, perfect or enforce any lien against property of the bankruptcy estate; and

 

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·                  any act to collect or recover a claim against the debtor that arose before the commencement of the bankruptcy case.

 

Thus, upon the commencement of a bankruptcy case, most secured creditors are prohibited from, among other things, repossessing their collateral from a debtor, or from disposing of such collateral repossessed from such a debtor, without bankruptcy court approval.  Moreover, applicable federal bankruptcy laws generally permit the debtor to continue to use, sell or lease collateral in the ordinary course of its business even though the debtor is in default under the applicable debt instruments.  Upon request from a secured creditor, the bankruptcy court could prohibit or condition such use, sale or lease of collateral as is necessary to provide adequate protection of the secured creditor’s interest in the collateral, subject to any contractual limitations on such secured creditor’s right to request adequate protection.  The meaning of the term adequate protection may vary according to the circumstances, but is intended generally to protect the value of the secured creditor’s interest in the collateral at the commencement of the bankruptcy case and may include cash payments or the granting of additional security, if, and at such times as the court in its discretion determines, any diminution in the value of the collateral occurs as a result of the debtor’s use, sale or lease of the collateral during the pendency of the bankruptcy case.  In view of the lack of a precise definition of the term adequate protection and the broad discretionary powers of a bankruptcy court, the Reorganized Debtor cannot predict whether payments under the New Secured Bonds would be made following commencement of and during a bankruptcy case, whether or when the New Secured Bond Indenture Trustee could foreclose upon or sell the collateral, or whether or to what extent holders of New Secured Bonds would be compensated for any delay in payment or loss of value as a result of the use, sale or lease of their collateral through the requirement of adequate protection.  A creditor may seek relief from the stay from the bankruptcy court to take any of the acts described above that would otherwise be prohibited by the automatic stay.  Bankruptcy courts have broad discretionary powers in determining whether to grant a creditor relief from the stay.

 

Furthermore, in the event the bankruptcy court determines that the value of the collateral is not sufficient to repay all amounts due on the New Secured Bonds, the holders of the New Secured Bonds would have undersecured claims for the difference.  Federal bankruptcy law generally does not permit the payment or accrual of interest, costs and attorneys’ fees for undersecured claims during the debtor’s bankruptcy case.

 

Additionally, the New Secured Bond Indenture Trustee’s ability to foreclose on the collateral on behalf of holders of New Secured Bonds may be subject to the consent of third parties, permitted liens and practical problems associated with the realization of the New Secured Bond Indenture Trustee’s interest in the collateral.  Moreover, the debtor or trustee in a bankruptcy case may seek to avoid an alleged security interest in collateral for the benefit of the bankruptcy estate.  It may successfully do so if, among other circumstances, the security interest is not properly perfected or was perfected within a specified period of time (generally, 90 days) prior to the initiation of such proceeding.  Under such circumstances, a creditor may hold no security interest and be treated as holding a general unsecured claim in the bankruptcy case.  It is impossible to predict what recovery (if any) would be available for such an unsecured claim if the Reorganized Debtor or any Subsidiary Guarantor became a debtor in a bankruptcy case.

 

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15.            The liens and security interests pertaining to the New Secured Bonds could be wholly or partially voided as a preferential transfer

 

If the Reorganized Debtor or any Subsidiary Guarantor becomes the subject of a bankruptcy proceeding within 90 days after the date of the New Secured Bond Indenture (or, with respect to any insiders specified in bankruptcy law who are holders of the New Secured Bonds, within one year after issuance of the New Secured Bonds), and the bankruptcy court determines that the Reorganized Debtor was insolvent at the time of the closing (under the preference laws, a debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of filing of its bankruptcy petition), the court could find that the granting of a security interest or the perfection of a lien with respect to the New Secured Bonds involved a preferential transfer.  In addition, to the extent that certain of the collateral is not perfected until after the Effective Date, such 90-day preferential transfer period would begin on the date of perfection.  If the court determined that the granting of the security interest or the perfection of the lien was a preferential transfer that did not qualify for any defense under bankruptcy law, then holders of the New Secured Bonds would be unsecured creditors with claims that rank pari passu with all other unsecured creditors of the applicable obligor, including trade creditors.  In addition, under such circumstances, the value of any consideration holders received pursuant to the New Secured Bonds, including upon foreclosure of the collateral, could also be subject to recovery from such holders and possibly from subsequent assignees, or such holders might be returned to the same position they held as holders of the New Secured Bonds.

 

16.            A court could deem the obligations evidenced by the New Secured Bonds to be a fraudulent conveyance

 

Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the incurrence of the debt evidenced by the New Secured Bonds could be voided, or claims in respect of the New Secured Bonds could be subordinated to all of the Reorganized Debtor’s other debts or the debts of any Subsidiary Guarantors if, among other things, the Reorganized Debtor or any Subsidiary Guarantor, at the time it incurred the debt evidenced by the New Secured Bonds:

 

·                  received less than reasonably equivalent value or fair consideration for the issuance of the New Secured Bonds or the incurrence of any Subsidiary Guarantor obligation;

 

·                  was insolvent or rendered insolvent by reason of such issuance or incurrence;

 

·                  was engaged in a business or transaction for which the Reorganized Debtor or any Subsidiary Guarantor’s remaining assets constituted unreasonably small capital; or

 

·                  intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

 

In addition, any payment by the Reorganized Debtor or any Subsidiary Guarantor pursuant to the New Secured Bonds could be voided and required to be returned to the Reorganized Debtor or any Subsidiary Guarantor, or to a fund for the benefit of the Reorganized

 

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Debtor’s creditors or creditors of any Subsidiary Guarantor.  Generally, an entity would be considered insolvent if, at the time it incurs indebtedness:

 

·                  the sum of its debts, including contingent liabilities, is greater than the fair value, or fair saleable value, of all its assets;

 

·                  the present fair value, or fair saleable value, of its assets was less than the amount that would be required to pay its probable liability on its existing debts and liabilities, including contingent liabilities, as they become absolute and mature; or

 

·                  it cannot pay its debts as they become due.

 

On the basis of its financial projections, the historical financial information relating to the Facility, and other factors, the Reorganized Debtor does not believe that, after giving effect to the issuance of the New Secured Bonds, it will be insolvent, will have unreasonably small capital for the business in which it is engaged or will have incurred debts beyond its ability to pay such debts as they mature.  The Reorganized Debtor also strongly believes that the holders of Existing Bonds will provide reasonably equivalent value in exchanging their Existing Bonds for New Secured Bonds in the same principal amount as the Existing Bonds.  The Reorganized Debtor cannot assure, however, as to what standard a court would apply in making these determinations or that a court would agree with the Reorganized Debtor’s conclusions in this regard.

 

17.            The value of the collateral securing the New Secured Bonds may not be sufficient to secure postpetition interest and holders of the New Secured Bonds may be deemed to have an unsecured or only a partially secured claim

 

In the event of a bankruptcy, liquidation, reorganization or similar proceeding under the Bankruptcy Code commenced by the Reorganized Debtor or any Subsidiary Guarantor, holders of the New Secured Bonds will be entitled to postpetition interest only if the value of their security interest in the collateral is greater than their pre-bankruptcy claim.  Holders of the New Secured Bonds that have a security interest in collateral with a value equal or less than their pre-bankruptcy claim will therefore not be entitled to postpetition interest under the Bankruptcy Code.  It is possible that a bankruptcy trustee or competing creditors will assert that the fair market value of the collateral with respect to the New Secured Bonds was less than the petition date balance due on the New Secured Bonds.  Upon a finding by a bankruptcy court that the New Secured Bonds are under-collateralized, the claims in the bankruptcy proceeding with respect to the New Secured Bonds would be bifurcated between a secured claim and an unsecured claim, and the unsecured claim would not be entitled to the benefits of security in the collateral securing the New Secured Bonds.

 

Other consequences of a finding of under-collateralization would be, among other things, a lack of entitlement on the part of the unsecured portion of the New Secured Bonds to receive other adequate protection under bankruptcy law.  In addition, if any payments of postpetition interest had been made at the time of such a finding of under-collateralization, those payments could be recharacterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to the New Secured Bonds.  No appraisal of the fair market value of the collateral has been prepared in connection with the issuance of the New

 

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Secured Bonds, and, therefore, the value of the New Secured Bond Indenture Trustee’s interest in the collateral may be less than the principal amount of the New Secured Bonds.  There may not be sufficient collateral to satisfy the Reorganized Debtor’s obligations under the New Secured Bonds.

 

C.                Certain Business Risk Factors

 

If any of the risk factors described in this subsection C were to occur, the business, operations and financial condition of the Reorganized Debtor would likely be negatively affected, perhaps materially. This in turn may affect the Reorganized Debtor’s ability to service debt obligations on the New Secured Bonds and its other indebtedness.

 

1.                   The revenues generated by the operation of the Facility are subject to market demand for energy, capacity and ancillary services, which are beyond the Reorganized Debtor’s control

 

The Facility will derive revenue from the sale of energy and capacity into PJM and NYISO and potentially from bilateral contracts with power marketers and load serving entities within PJM, NYISO and the surrounding markets.  Participants in PJM and NYISO are not guaranteed any specified rate of return on their capital investments through recovery of mandated rates payable by purchasers of electricity.  Therefore, the Reorganized Debtor’s revenues and results of operations will be dependent upon prevailing market prices for energy, capacity and ancillary services in the PJM, NYISO and other competitive markets.  The following factors, among others, influence the market prices for energy, capacity and ancillary services in PJM and NYISO, and are beyond the Reorganized Debtor’s control:

 

·                  prevailing market prices for coal, natural gas and associated transportation costs;

 

·                  the extent of additional supplies of capacity, energy and ancillary services from current competitors or new market entrants, including the development of new generation facilities that may be able to produce electricity less expensively;

 

·                  transmission congestion in PJM and/or NYISO;

 

·                  the extended operation of generating plants in PJM and NYISO beyond their presently expected dates of decommissioning;

 

·                  weather conditions prevailing in PJM and NYISO from time to time;

 

·                  regulatory constraints on pricing (current or future) or the functioning of the energy trading markets and energy trading generally; and

 

·                  the possibility of a reduction in the projected rate of growth in electricity usage as a result of factors like regional economic conditions and the implementation of conservation programs.

 

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Unlike most other commodities, electric power can only be stored on a very limited basis and generally must be produced when it is to be used.  As a result, the wholesale power markets are subject to significant and unpredictable price fluctuations over relatively short periods of time.  Due to the volume of sales into PJM from the Facility, the Reorganized Debtor will have concentrated exposure to market conditions and fluctuations in PJM.  At times, there may be political pressure, or pressure from regulatory authorities with jurisdiction over wholesale and retail energy commodity and transportation rates, to impose price limitations, bidding rules and other mechanisms to address volatility and other issues in the markets, the effect of which on the Reorganized Debtor’s results of operations cannot be anticipated.

 

Prices for power and capacity have declined significantly due largely to lower natural gas prices and have been affected in recent years by, among other things, changes in final demand for power during the economic slowdown, technological developments that have increased access to natural gas shale reserves, and increased use of demand response technology.  All of these factors have resulted in substantial declines in market prices for natural gas, which supplies power plants that compete with the Reorganized Debtor’s Facility.  Many industry experts expect the current supply/demand imbalance to continue for a number of years, thereby depressing natural gas prices for a long-term period.

 

There is considerable uncertainty whether or when current depressed prices will recover.  The Reorganized Debtor may not cover the entire exposure of its assets or positions to market price volatility with hedging instruments, and the level of hedging will vary over time.  The effectiveness of the Reorganized Debtor’s hedging activities may depend on the ability of the Reorganized Debtor or its power market consultant to post collateral, either in support of performance guarantees or as cash margin, and liquidity requirements may be greater than the Reorganized Debtor anticipates or will be able to meet.  The Reorganized Debtor cannot provide assurance that it will be able to institute hedging strategies that will successfully mitigate market risks or that it will be able to operate the Facility profitably in the future.

 

2.                   The Reorganized Debtor’s financial results can be affected by changes in fuel prices, fuel transportation cost and interruptions in fuel supply

 

In addition to volatile power prices, the Reorganized Debtor’s business will be subject to changes in fuel costs and fuel transportation costs.  Fuel costs are volatile and can be influenced by many factors outside the Reorganized Debtor’s control.  The price at which the Reorganized Debtor can sell its energy may not rise or fall at the same rate as a corresponding rise or fall in fuel costs.  Operations at the Facility will be dependent upon the availability and affordability of coal, which is available only from a limited number of suppliers.  Power generators in the Northeastern United States have experienced significant pressures on available coal supplies that are either transportation or supply related.   If the Reorganized Debtor is unable to procure coal for physical delivery at prices it considers favorable, it business, results of operations and financial condition could be adversely affected, perhaps materially.

 

3.                   The insurance coverage for the Facility may not be adequate

 

The Reorganized Debtor will be required to have insurance for the Facility, including business interruption insurance, physical damage insurance (including flood and

 

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earthquake coverage), primary and excess liability insurance, customary worker’s compensation and automobile insurance, and such other insurance customarily maintained by comparable businesses.  The Reorganized Debtor cannot assure that the insurance coverage for the Facility will be available on commercially reasonable terms.  There can be no assurance that the Reorganized Debtor’s insurance will be sufficient or effective under all circumstances or protect against all hazards to which the Reorganized Debtor may be subject or that the insurance proceeds received for any loss of the Facility or any damage to the Facility would be sufficient to permit the Reorganized Debtor to make any payments under the New Secured Bond Indenture.

 

4.                   The Reorganized Debtor will operate in a highly competitive industry

 

The Reorganized Debtor will have numerous competitors in all aspects of its business, some of whom may have greater liquidity, greater access to credit and other financial resources, lower cost structures, greater ability to withstand losses, larger staffs or more experience than the Reorganized Debtor.  Multiple participants in the wholesale markets, including many regulated utilities, have a lower cost of capital than most merchant generators and often are able to recover fixed costs through rate base mechanisms, allowing them to build, buy and upgrade generation assets without relying exclusively on market clearing prices to recover their investments.  These factors could affect the Reorganized Debtor’s ability to compete effectively in the markets in which those entities operate.  Some newer plants owned by the Reorganized Debtor’s competitors will be more efficient than the Facility and may also have lower costs of operation.  Over time, the Facility may become obsolete in its markets, or be unable to compete with such plants.

 

5.                   To generate revenue from the sale of electricity, the Reorganized Debtor will rely on third parties to connect the Facility to the power grid and to provide transmission service

 

The Facility interconnects to the power transmission system through a substation owned by Penelec and NYSEG, who provide interconnection services to the Facility pursuant to the Interconnection Agreement.  The Reorganized Debtor will require an assignment of the Interconnection Agreement or a new agreement.  A delay in securing either may delay the occurrence of the Effective Date and the closing of the transactions contemplated by the Master Transaction Agreement.  Interconnection service is necessary for the Reorganized Debtor to sell and deliver wholesale power.  Were the Reorganized Debtor to seek to close the Master Transaction Agreement in advance of the assignment of the Interconnection Agreement or entry into a new agreement, there could be a material delay in the Reorganized Debtor’s ability to deliver energy and therefore generate revenue from the Facility.

 

6.                   The Reorganized Debtor’s operations require substantial ongoing capital projects, the completion of which may be subject to unanticipated delay or cost overruns

 

The Reorganized Debtor’s business will be capital intensive, and the Reorganized Debtor expects to incur capital expenditures on an ongoing basis to maintain its equipment and comply with environmental laws, as well as to enhance the efficiency of its operations.  The Reorganized Debtor currently estimates that capital expenditures totaling approximately $700

 

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million to $750 million are expected to be dedicated to the construction and installation of the FGDs to Units 1 and 2 of the Facility. The Reorganized Debtor anticipates that its available cash resources, including amounts under the Working Capital Facility, cash generated from operations and contributions from its limited partners, will be sufficient to fund its initial operating needs and capital expenditures.  However, such capital expenditure projects are often complex and may be subject to unanticipated construction delays or cost overruns or result in a failure to achieve operational performance targets or to obtain regulatory approvals.  In addition, the construction period for the installation of the FGDs may be extended, subject to applicable permitting requirements and receipt of required consents.   If the Reorganized Debtor cannot maintain or upgrade its facilities and equipment as it requires or as necessary to ensure environmental compliance, there could be a material adverse effect on the Reorganized Debtor’s business, financial condition, and results of operations.

 

7.                   General operating risks may decrease or eliminate the revenues generated by the Facility or increase its operating costs

 

The operation of the Facility involves many operating risks, including, but not limited to the following:

 

·                  performance below expected levels of output or efficiency;

 

·                  interruptions in fuel supply;

 

·                  disruptions in the transmission of electricity;

 

·                  breakdown or failure of equipment or processes;

 

·                  imposition of new regulatory requirements, including those under environmental laws and regulations;

 

·                  disputes with labor unions in which personnel involved in the operation of the Facility are members and disputes under the collective bargaining agreements applicable to such personnel;

 

·                  new and more stringent permit requirements; and

 

·                  operator error or catastrophic events like fires, earthquakes, explosions, floods or other similar occurrences affecting power generation facilities.

 

Although it is expected that the Operator will employ experienced operating personnel to operate the Facility and that the Facility will be adequately insured to mitigate the effects of the operating risks described above, the Reorganized Debtor cannot assure that the occurrence of one or more of the events listed above would not significantly decrease or eliminate revenues generated by the Facility or significantly increase the costs of operating it.  A decrease or elimination in revenues generated by the Facility or an increase in the costs of operating it could decrease or eliminate funds available to make payments in an aggregate amount sufficient to service the debt obligations under the New Secured Bond Indenture.

 

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8.                   The Reorganized Debtor has entered into an agreement with a third-party Operator to provide maintenance and operation services previously supplied by EME Homer City

 

EME Homer City has previously provided a number of maintenance and other services to the Facility.  Because EME Homer City will no longer own a leasehold interest in the Facility after the Effective Date, it will stop providing such services as of the Effective Date, subject to a brief transition period provided for in the Master Transaction Agreement and Transition Services Agreement.  The Reorganized Debtor has entered into the Operations and Maintenance Agreement with a third-party Operator to operate the Facility from and after the Effective Date.

 

The performance of the Reorganized Debtor’s business will be affected by and dependent upon the performance of the Operator.  Accordingly, the Reorganized Debtor will be dependent upon the Operator to effectively operate the Facility and its attendant risks.  Any failure by the Operator to perform satisfactorily could cause substantial disruption and damage to the Reorganized Debtor’s business, and it may be difficult to find a replacement operator on acceptable terms, if it all, if that were to occur.

 

9.                   Labor disruptions or cost increases could adversely affect the Reorganized Debtor’s business

 

A significant number of the current Facility employees are subject to an existing collective bargaining agreement that expires on December 31, 2012.  The Reorganized Debtor expects that the Operator will negotiate a new collective bargaining agreement on terms to be mutually agreed upon, although, as of the date hereof, a new collective bargaining agreement has not yet been negotiated.  Until negotiations are completed, it is not known whether the collective bargaining agreement will be negotiated on the same or more favorable terms as the current agreements, or at all, without production interruptions, including labor stoppages.  The Facility may also experience labor cost increases or disruptions concerning its non-union employees in circumstances where the Operator must compete for employees with necessary skills and experience in tight labor markets.  A work stoppage at the Facility that lasts for a significant period of time could cause the Reorganized Debtor to lose revenue, incur increased costs and adversely affect its ability to meet customer needs.  A Facility shutdown or a substantial modification to employment terms, including disputes with respect to the collective bargaining agreement or collective bargaining agent affecting the Facility’s unionized employees, could result in material gains or losses or the recognition of an asset impairment.

 

10.            The interests of GE Capital and MetLife as the equity holders in the Reorganized Debtor may conflict with the interests of holders of debt

 

The Reorganized Debtor will be owned by EFS HC GP, LLC, a subsidiary of GE Capital, as general partner, and EFSHC, a subsidiary of GE Capital, and MetLife as limited partners.  The interests of GE Capital and/or MetLife may not in all cases be aligned with the interests of the holders of the New Secured Bonds.

 

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D.                Certain Risks Concerning Regulations and Permitting Requirements

 

1.                   The Reorganized Debtor’s business will be subject to substantial regulations and permitting requirements that may involve significant and increasing costs

 

The Reorganized Debtor’s business is subject to extensive energy and environmental regulation, with respect to, among other things, air quality, water quality, and waste disposal, by federal, state and local authorities.  The Reorganized Debtor and/or the new Operator of the Facility will be required to comply with numerous laws and regulations and to obtain numerous governmental permits for the operation or ownership of the Facility, as the case may be.  Typically, environmental laws require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction, operation or modification of a project or generating facility.  The Reorganized Debtor cannot provide assurance that it will be able to obtain and comply with all necessary licenses, permits and approvals for the Facility.  If there is a delay in obtaining required approvals or permits, or if the Reorganized Debtor fails to obtain and comply with such permits, the operation of the Facility may be interrupted or subject the Reorganized Debtor to civil or criminal liability, the imposition of liens or fines, or actions by regulatory agencies seeking to curtail the Reorganized Debtor’s operations.  The Reorganized Debtor may also be exposed to risks arising from past, current or future contamination at the Facility or with respect to off-site waste disposal sites that have been used in the operations of its predecessors.  Additionally, the Reorganized Debtor cannot assure that existing regulations will not be revised or reinterpreted, that new laws and regulations will not be adopted or become applicable to it or the Facility or that future changes in laws and regulations will not have a material effect on its business.

 

Moreover, while NewCo has initiated the process of obtaining, and expects to obtain, all required regulatory and governmental approvals for the transactions contemplated by the Plan and the Master Transaction Agreement, including approval from PADEP, it expects that certain permits and/or approvals will not be obtained as of the Effective Date.  The Reorganized Debtor cannot assure that all of these necessary approvals will be ultimately obtained or, if obtained, that the terms thereof will not result in increased costs to operate the Facility or limitations on the operation of the Facility.

 

2.                   Regulations regarding the sale of energy, capacity and ancillary services will affect the Reorganized Debtor’s business

 

Federal laws and regulations govern, among other things, transactions by and with wholesale sellers and purchasers of power, including utility companies, the development and construction of generation facilities, the ownership and operation of generation facilities, and access to transmission.  Generation facilities are also subject to federal, state and local laws and regulations that govern, among other things, the geographical location, zoning, land use, and operation of a project.  The Reorganized Debtor believes that it will have obtained all material energy-related federal, state and local permits and approvals currently required to operate the Facility.  However, although not currently required, additional regulatory approvals may be required in the future due to a change in laws and regulations, a change in the Reorganized Debtor’s customers or for other reasons.  FERC may impose various forms of market mitigation measures, including price caps and operating restrictions, where it determines that potential

 

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market power may exist and mitigation is required.  FERC also may impose penalties, costs, fines and/or refund obligations arising from past, current or future FERC jurisdictional activities and sales.

 

Regional transmission organizations and independent system operators may impose bidding and scheduling rules, both to curb the potential exercise of market power and to facilitate market functions.  Such actions may materially affect the Reorganized Debtor’s results of operations.  The Facility is also subject to mandatory reliability standards promulgated by the North American Electric Reliability Corporation, compliance with which can increase the Facility’s operating costs or capital expenditures.  This extensive governmental regulation creates significant risks and uncertainties for the Reorganized Debtor’s business.  Additionally, the Reorganized Debtor cannot assure that it will be able to obtain all required regulatory approvals that it does not yet have or that it may require in the future, or that it will be able to obtain any necessary modifications to existing regulatory approvals or maintain all required regulatory approvals.  If there is a delay in obtaining any required regulatory approvals or if the Reorganized Debtor fails to obtain and comply with any required regulatory approvals, the operation of the Facility or the sale of electricity to third parties could be prevented or subject to additional costs.

 

3.                   Regulations regarding safety and health will affect the Reorganized Debtor’s business

 

The Reorganized Debtor is required to comply with numerous statutes, regulations and ordinances relating to the safety and health of employees and the public, which are constantly changing.  The Reorganized Debtor may incur significant additional costs to comply with new requirements.  If the Reorganized Debtor fails to comply with existing or new requirements, it could be subject to civil or criminal liability and the imposition of liens or penalties.  The Reorganized Debtor cannot assure that it will, at all times, be in compliance with all applicable health and safety laws and regulations or that steps to bring the Facility into compliance would not materially and adversely affect its ability to service debt obligations on the New Secured Bonds.

 

The operation of any coal-fired power generation facility, including the Facility, represents a degree of danger for its employees and the general public, should they come in contact with power lines or electrical equipment.  Injuries caused by such contact can subject the Reorganized Debtor to liability that, despite the existence of insurance coverage, can be significant.  Such liabilities could be significant but are very difficult to predict.  The range of possible liabilities includes amounts that could adversely affect the Reorganized Debtor’s liquidity and results of operations.

 

4.                   Regulations of emissions, and pending litigation matters concerning the compliance of the Facility therewith, will affect the Reorganized Debtor’s business

 

The Reorganized Debtor will need to devote significant resources to environmental monitoring, emissions control equipment and emission allowances to comply with environmental regulatory requirements.  There are certain claims and litigation matters pending

 

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against the Facility and/or its stakeholders that may affect the operation of the Facility.  The EPA has filed an enforcement action against EME Homer City and the Owner Lessors, among other parties, alleging violations of the Clean Air Act (“CAA”) and other regulations at the Facility.  While these claims were dismissed by the United States District Court for the Western District of Pennsylvania in October 2011, an appeal is currently pending before the United States Court of Appeals for the Third Circuit.  Further, the Sierra Club has publicly stated its intent to file a citizen lawsuit in federal court in Pennsylvania against EME Homer City for violations of emissions standards and limitations under the CAA.  Although no suit has been filed as of the date of this Disclosure Statement, the Sierra Club will purportedly seek to enjoin actions taken in violation of the CAA, ensure future compliance therewith, and impose penalties for violations.  For more detail with respect to these claims and others against the Facility or its stakeholders, please consult EME Homer City’s SEC Filings, including its Form 10-K annual report for the year ended December 31, 2011, filed with the SEC on March 28, 2012.  On September 6, 2012, the Sierra Club filed a petition with the administrator of the EPA to object to the Proposed Title V Permit for the Facility, which was issued on May 25, 2012 by PADEP.

 

In addition, the current trend is toward more stringent standards, stricter regulation, and more expansive application of environmental regulations.  The adoption of additional laws and regulations regarding CO2 (carbon dioxide) emissions could adversely affect coal-fired power plants.  Other environmental laws, particularly with respect to air emissions, disposal of ash, wastewater discharge and cooling water systems, are also generally becoming more stringent.  The impact of these and other future regulations is not currently known.  If the Reorganized Debtor cannot comply with all applicable regulations, it could be required to retire or suspend operations at the Facility, or restrict or modify the operations of the Facility, and its business, results of operations and financial condition could be adversely affected.

 

One of the Reorganized Debtor’s strategies for compliance with federal and state regulations regarding air emissions is the construction of the environmental capital improvements to the Facility, including construction of the FGDs.  A delay in the completion of these improvements or the failure of the improvements to perform to their technical specifications could adversely affect the Reorganized Debtor’s compliance strategy and require the Reorganized Debtor to purchase emissions allowances or reduce the expected levels of operation of Facility.  Although the material contracts for the construction of these environmental capital improvements contain customary performance and completion guarantees, the Reorganized Debtor cannot assure that the improvements will be completed when anticipated or whether those systems will perform at the expected levels.

 

5.                   The installation of FGDs on Units 1 and 2 of the Facility in order to comply with requirements of law is subject to certain risks beyond the Reorganized Debtor’s control

 

The Reorganized Debtor cannot guarantee that the FGDs being installed pursuant to the EPC Contract will lack defects and be effective at reducing air emissions from the Facility to a legally permissible level.  In addition, the Reorganized Debtor cannot guarantee that the parties to the EPC Contract for the construction of the FGDs, and the parties to the ancillary contracts relating to the project, will perform under those contracts.  In particular, the funding to support construction under these contracts is provided by GE Capital or its Affiliates.  Although

 

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the EPC Contract imposes substantial fees upon termination thereof, there can be no assurance that GE Capital or its Affiliates will continue to fund the FGD construction under these contracts.

 

Further, EME Homer City requires PADEP approval to install the FGDs.  EME Homer City received the necessary Plan Approval from PADEP on April 2, 2012 to construct the equipment on the Facility.  Earthjustice, an environmental nonprofit law firm on behalf of The Sierra Club, has appealed the issuance of the Plan Approval to the Pennsylvania Environmental Hearing Board, alleging that PADEP violated its own rules by issuing the Plan Approval without requiring that the Facility demonstrate compliance with certain emissions requirements, and requesting that the Plan Approval be conditioned on the demonstration of such compliance.  The Reorganized Debtor cannot predict the outcome of this appeal.

 

ARTICLE X.

 

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

 

The following discussion summarizes certain U.S. federal income tax consequences of the implementation of the Plan to the Debtor and to holders of certain Existing Bond Claims.  This discussion does not address the U.S. federal income tax consequences to holders of Claims who are unimpaired or otherwise entitled to payment in full in cash under the Plan, to GE Capital or any of its affiliates that hold Existing Bond Claims, or to holders of Equity Interests.

 

The discussion of U.S. federal income tax consequences below is based on the Internal Revenue Code of 1986, as amended (the “Tax Code”), Treasury regulations, judicial authorities, published positions of the Internal Revenue Service (“IRS”) and other applicable authorities, all as in effect on the date of this document and all of which are subject to change or differing interpretations (possibly with retroactive effect).  The U.S. federal income tax consequences of the contemplated transactions are complex and are subject to significant uncertainties.  The Debtor has not requested a ruling from the IRS or any other tax authority, or an opinion of counsel, with respect to any of the tax aspects of the contemplated transactions, and the discussion below is not binding upon the IRS or such other authorities.  Thus, no assurance can be given that the IRS or such other authorities would not assert, or that a court would not sustain, a different position from any discussed herein.

 

This summary does not address foreign, state or local tax consequences of the contemplated transactions, nor does it purport to address the U.S. federal income tax consequences of the transactions to special classes of taxpayers (e.g., foreign taxpayers, small business investment companies, regulated investment companies, real estate investment trusts, banks and certain other financial institutions, insurance companies, tax-exempt organizations, retirement plans, individual retirement or other tax-deferred accounts, holders that are, or hold Existing Bond Claims through, partnerships or other pass-through entities for U.S. federal income tax purposes, persons whose functional currency is not the U.S. dollar, dealers in securities or foreign currency, traders that mark-to-market their securities, persons subject to the alternative minimum tax, and persons holding Existing Bond Claims that are part of a straddle, hedging, constructive sale or conversion transaction).  In addition, this discussion does not

 

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address U.S. federal taxes other than income taxes, and it does not apply to any person that acquires any of the New Secured Bonds other than in exchange for Existing Bond Claims.

 

This discussion assumes that the Existing Bond Claims and the New Secured Bonds are held as “capital assets” (generally, property held for investment) within the meaning of Section 1221 of the Tax Code.

 

The following summary of certain U.S. federal income tax consequences is for informational purposes only and is not a substitute for careful tax planning and advice based upon your individual circumstances.

 

Internal Revenue Service Circular 230 Notice: To ensure compliance with Internal Revenue Service Circular 230, holders of Claims and Equity Interests are hereby notified that: (A) any discussion of federal tax issues contained or referred to in this Disclosure Statement is not intended or written to be used, and cannot be used, by holders of Claims or Equity Interests for the purpose of avoiding penalties that may be imposed on them under the Internal Revenue Code; (B) such discussion is written in connection with the promotion or marketing by the Debtor of the transactions or matters addressed herein; and (C) holders of Claims and Equity Interests should seek advice based on their particular circumstances from an independent tax advisor.

 

A.                Consequences to the Debtor

 

The Debtor is treated as a non-economic pass-through entity that is disregarded, and the Existing Bond Claims are integrated with the Lessor Notes and treated as obligations of the direct or indirect owner of each Owner Lessor, in each case for U.S. federal income tax purposes.  Accordingly, the U.S. federal income tax consequences of the Plan generally will not be borne by the Debtor, but instead will be borne by such owner of each Owner Lessor.

 

Pursuant to the Plan, the Existing Bonds will be exchanged for New Secured Bonds.  For the reasons set forth above, any cancellation of indebtedness income attributable to such exchange will be realized by the owner of each Owner Lessor for U.S. federal income tax purposes at the time of the exchange.

 

B.                Consequences to Holders of Existing Bond Claims

 

As used in this section of the Disclosure Statement, the term “U.S. Holder” means a beneficial owner of Existing Bond Claims and New Secured Bonds that is, for U.S. federal income tax purposes:

 

·                  an individual who is a citizen or resident of the United States;

 

·                  a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

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·                  an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

·                  a trust, if a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have authority to control all of its substantial decisions, or if the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

 

If a partnership or other entity taxable as a partnership for U.S. federal income tax purposes holds Existing Bond Claims or New Secured Bonds the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership.  If you are a partner in a partnership holding any of such instruments, you should consult your own tax advisor.

 

We have historically treated the Existing Bonds as direct obligations of the Owner Lessors not subject to the Treasury regulations governing “contingent payment debt instruments,” and this discussion assumes the correctness of this position.  Holders of Existing Bond Claims should consult their own tax advisors with respect to the correctness of this position and the tax consequences of the transactions discussed herein if such position is not correct.

 

C.                Exchanges of Existing Bond Claims Under the Plan

 

Pursuant to the Plan, and in complete and final satisfaction of their respective Existing Bond Claims, holders of Existing Bond Claims will receive New Secured Bonds.  This transaction will be treated, for U.S. federal income tax purposes, as an exchange of Existing Bonds for new bonds if such transaction constitutes a “significant modification” of the Existing Bonds under the applicable Treasury regulations.  In general, a modification is a “significant modification” if, based on all facts and circumstances and taking into account all modifications of the debt instrument collectively, the legal rights or obligations that are altered and the degree to which they are altered are economically significant.  The applicable Treasury regulations provide that a change in the yield of a debt instrument is a significant modification if the yield on the modified instrument varies from the annual yield on the unmodified instrument (determined as of the date of the modification) by more than the greater of 25 basis points or five percent of the annual yield of the unmodified instrument.  The applicable Treasury regulations also provide that a material deferral of scheduled payments is a significant modification, that the substitution of a new obligor on a recourse debt instrument constitutes a significant modification if there is a change in payment expectations, and that the change in the nature of a debt instrument from nonrecourse to recourse is a significant modification.  Additionally, under the Treasury regulations, a modification that adds, deletes, or alters customary accounting or financial covenants is not a significant modification.

 

The Debtor expects that the treatment of the Existing Bond Claims pursuant to the Plan will constitute a “significant modification” resulting in an exchange of the Existing Bonds, and the remainder of this discussion assumes the correctness of this position.  Holders of Existing Bond Claims should consult their own tax advisors with respect to the correctness of

 

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this position and the tax consequences of the transactions discussed herein if such position is not correct.

 

The U.S. federal income tax consequences of the Plan to a U.S. Holder of Existing Bond Claims will depend on whether the exchange of such Claims for New Secured Bonds is deemed to occur immediately before or immediately after the mergers of the Owner Lessors into the Reorganized Debtor (which determination is unclear) and on whether such Existing Bond Claims and the New Secured Bonds received in exchange therefor constitute “securities” of the owner of each Owner Lessor immediately before such mergers (which determination is made separately for the Existing Bond Claims and the New Secured Bonds), in each case for U.S. federal income tax purposes.

 

If such exchange is deemed to occur immediately before such mergers and both the Existing Bond Claims and the New Secured Bonds constitute securities of the owner of each Owner Lessor immediately before such mergers, then such exchange will be treated as a “recapitalization” for U.S. federal income tax purposes, with the consequences described below in the paragraph titled “Recapitalization Treatment.”  If, on the other hand, such exchange is deemed to occur immediately after such mergers or either the Existing Bond Claims or the New Secured Bonds do not constitute securities of the owner of each Owner Lessor immediately before such mergers, then such exchange will be treated as a fully taxable transaction, with the consequences described below in the paragraph titled “Fully Taxable Exchange.”

 

The term “security” is not defined in the Tax Code or in the Treasury regulations issued thereunder and has not been clearly defined by judicial decisions.  The determination of whether a particular debt obligation constitutes a “security” depends on an overall evaluation of the nature of the debt, including whether the holder of such debt obligation is subject to a material level of entrepreneurial risk and whether a continuing proprietary interest is intended or not.  One of the most significant factors considered in determining whether a particular debt is a security is its original term.  In general, debt obligations issued with a weighted average maturity at issuance of less than five years do not constitute securities, whereas debt obligations with a weighted average maturity at issuance of ten years or more constitute securities.  Additionally, the IRS has ruled that new debt obligations with a term of less than five years issued in exchange for and bearing the same terms (other than interest rate) as securities should also be classified as securities for this purpose, since the new debt represents a continuation of the holder’s investment in the corporation in substantially the same form.

 

U.S. Holders of Existing Bond Claims are urged to consult their own tax advisors regarding the timing of the exchange of Existing Bond Claims for New Secured Bonds for U.S. federal income tax purposes and the appropriate status as a security or otherwise for U.S. federal income tax purposes of their Existing Bond Claims and the New Secured Bonds to be received.

 

1.                   Recapitalization Treatment

 

The classification of an exchange as a recapitalization for U.S. federal income tax purposes generally serves to defer the recognition of any gain or loss by the U.S. Holder. Notwithstanding the foregoing, a U.S. Holder of Existing Bond Claims would still generally have to recognize its gain, if any, to the extent of the fair market value of the excess, if any, of

 

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the principal amount of the New Secured Bonds received over the principal amount of such holder’s Existing Bond Claims.  Each holder is urged to consult its own tax advisor regarding the possible application of (or ability to elect out of) the “installment method” of reporting any such gain.

 

In addition, even within an otherwise tax-free recapitalization exchange, a U.S. Holder will have interest income to the extent of any exchange consideration allocable to accrued but unpaid interest not previously included in income. For a further discussion, please see below in the paragraph titled “Payment of Accrued Interest.”

 

In a recapitalization exchange, a U.S. Holder’s aggregate tax basis in the New Secured Bonds received will equal the U.S. Holder’s aggregate adjusted tax basis in the Existing Bond Claims exchanged therefor, increased by any gain or interest income recognized in the exchange.  In a recapitalization exchange, a U.S. Holder’s holding period in the New Secured Bonds received will include the U.S. Holder’s holding period in the Existing Bond Claims exchanged therefor, except to the extent of any exchange consideration received in respect of accrued but unpaid interest.

 

2.                   Fully Taxable Exchange

 

If the exchange of an Existing Bond Claim pursuant to the Plan is a fully taxable exchange, the exchanging U.S. Holder generally should recognize gain or loss in an amount equal to the difference, if any, between (i) the “issue price” of the New Secured Bonds received (for further discussion, please see ARTICLE X.D.1 of this Disclosure Statement below, titled “OID and Issue Price”) (other than any exchange consideration received in respect of a Claim for accrued but unpaid interest), and (ii) the U.S. Holder’s adjusted tax basis in the Existing Bond Claims exchanged (other than any basis attributable to accrued but unpaid interest).   For further discussion, please see the paragraph below, titled “Character of Gain or Loss.”  In addition, a U.S. Holder of an Existing Bond Claim will have interest income to the extent of any exchange consideration allocable to accrued but unpaid interest not previously included in income.  For further discussion, please see the paragraph below, titled “Payment of Accrued Interest.”

 

U.S. Holders of Existing Bond Claims are urged to consult their own tax advisors regarding the possible application of (or ability to elect out of) the “installment method” of reporting any gain that may be recognized by such holders in respect of such Existing Bond Claims.

 

Generally, a U.S. Holder’s adjusted tax basis in an Existing Bond Claim will be equal to the cost of the Existing Bond Claim to such U.S. Holder, increased by any original issue discount (“OID”) previously included in income.  If applicable, a U.S. Holder’s tax basis in an Existing Bond Claim also will be (i) increased by any market discount previously included in income by such U.S. Holder pursuant to an election to include market discount in gross income currently as it accrues, and (ii) reduced by any cash payments received on the Existing Bond Claim other than payments of qualified stated interest, and by any amortizable bond premium that the U.S. Holder has previously deducted.

 

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In the case of a taxable exchange, a U.S. Holder’s tax basis in the New Secured Bonds received will equal the amount realized in determining the U.S. Holder’s gain or loss.  The U.S. Holder’s holding period in such bonds received should begin on the day following the exchange date.

 

3.                   Character of Gain or Loss

 

Except to the extent that any consideration received pursuant to the Plan is received in satisfaction of accrued but unpaid interest during its holding period (for further discussion, please see the paragraph below, titled “Payment of Accrued Interest”), where gain or loss is recognized by a U.S. Holder in respect of the satisfaction and exchange of its Existing Bond Claim, such gain or loss will be capital gain or loss except to the extent any gain is recharacterized as ordinary income pursuant to the market discount rules discussed below.  A reduced tax rate on long-term capital gain may apply to non-corporate U.S. Holders.  The deductibility of capital loss is subject to significant limitations.

 

A U.S. Holder that purchased its Existing Bond Claims from a prior holder at a “market discount” (relative to the principal amount of the Existing Bond Claims at the time of acquisition) may be subject to the market discount rules of the Tax Code.  In general, a debt instrument is considered to have been acquired with “market discount” if its holder’s adjusted tax basis in the debt instrument is less than (i) its stated principal amount or (ii) in the case of a debt instrument issued with OID, its adjusted issue price, in each case, by at least a de minimis amount.  The de minimis amount is equal to 0.25% of the sum of all remaining payments to be made on the debt instrument, excluding qualified stated interest, multiplied by the number of remaining whole years to maturity.  Generally, qualified stated interest is a stated amount of interest payable in cash at least annually.

 

Under these rules, any gain recognized on the exchange of Existing Bond Claims (other than in respect of a Claim for accrued but unpaid interest) generally will be treated as ordinary income to the extent of the market discount accrued (on a straight line basis or, at the election of the U.S. Holder, on a constant yield basis) during the U.S. Holder’s period of ownership, unless the U.S. Holder elected to include the market discount in income as it accrued.  If a U.S. Holder of Existing Bond Claims did not elect to include market discount in income as it accrued and thus, under the market discount rules, was required to defer all or a portion of any deductions for interest on debt incurred or maintained to purchase or carry its Existing Bond Claims, such deferred amounts generally would become deductible at the time of the exchange, subject to possible limitation if the exchange qualifies as a recapitalization.

 

In the case of an exchange of Existing Bond Claims that qualifies as a recapitalization, the Tax Code indicates that any accrued market discount in respect of the Existing Bond Claims in excess of the gain recognized in the exchange should not be currently includible in income under Treasury regulations to be issued.  However, such accrued market discount should carry over to the New Secured Bonds received in exchange therefor.  In addition, the New Secured Bonds received in an exchange for Existing Bond Claims that qualifies as a recapitalization will be treated as acquired at a market discount if the issue price of such bonds exceeds the adjusted tax basis for such bonds by more than a de minimis amount.  Any gain recognized by a U.S. Holder upon a subsequent disposition (or repayment) of the New

 

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Secured Bonds would be treated as ordinary income to the extent of any accrued market discount not previously included in income plus the market discount that has accrued on the New Secured Bonds.  To date, specific Treasury regulations implementing this rule have not been issued.

 

4.                   Payment of Accrued Interest

 

In general, to the extent that any consideration received pursuant to the Plan by a U.S. Holder of an Existing Bond Claim is received in satisfaction of accrued interest during its holding period, such amount will be taxable to the U.S. Holder as interest income (if not previously included in the U.S. Holder’s gross income).  Conversely, a U.S. Holder generally recognizes a deductible loss to the extent any accrued interest claimed or amortized OID was previously included in its gross income and is not paid in full.  However, the IRS has privately ruled that a holder of a “security” of a corporate issuer, in an otherwise tax-free exchange, could not claim a current deduction with respect to any unpaid OID. Accordingly, it is also unclear whether, by analogy, a U.S. Holder of an Existing Bond Claim that does not constitute a security would be required to recognize a capital loss, rather than an ordinary loss, with respect to previously included OID that is not paid in full.

 

Pursuant to Section 7.10 of the Plan, consideration received in respect of a Claim will be allocable first to the principal amount of the Claim (as determined for U.S. federal income tax purposes) and then, to the extent of any excess, to the remainder of the Claim, including any Claim for accrued but unpaid interest (in contrast, for example, to a pro rata allocation of a portion of the exchange consideration received between principal and interest, or an allocation first to accrued but unpaid interest).  There is no assurance that the IRS will respect such allocation for U.S. federal income tax purposes.  You are urged to consult your own tax advisor regarding the allocation of consideration and the deductibility of accrued but unpaid interest for U.S. federal income tax purposes.

 

D.                Ownership and Disposition of New Secured Bonds

 

1.                   OID and Issue Price

 

Because the New Secured Bonds provide the Reorganized Debtor with the option to pay payment-in-kind (“PIK”) interest in lieu of paying cash interest in any interest period through and including April 1, 2014, the New Secured Bonds will be treated as issued with OID, as described below.  The payment of PIK interest on a bond generally is not treated as a payment of interest. Instead, the bond and any PIK notes issued in respect of PIK interest thereon are treated as a single debt instrument under the OID rules.

 

The New Secured Bonds will be issued with OID in an amount equal to the excess of the “stated redemption price at maturity” of the New Secured Bonds over their “issue price.”  For purposes of the foregoing, the general rule is that the stated redemption price at maturity of a debt instrument is the sum of all payments provided by the debt instrument other than payments of “qualified stated interest.”  The term “qualified stated interest” means stated interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually.  Because the Reorganized Debtor will have the option in any interest period through and including April 1, 2014 to make interest payments in PIK interest instead of

 

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paying Cash, the stated interest payments on the New Secured Bonds are not qualified stated interest.  Thus, Cash interest payable on the New Secured Bonds will be included in the stated redemption price at maturity and taxed as part of OID.

 

The “issue price” of the New Secured Bonds depends on whether, at any time during the 60-day period ending 30 days after the exchange date (or, if the exchange date occurs on or after November 13, 2012, the 31-day period ending 15 days after the exchange date), the New Secured Bonds are traded on an “established market” or the Existing Bond Claims exchanged for the New Secured Bonds are traded on an established market.  Pursuant to applicable Treasury regulations, an “established market” need not be a formal market.  It is sufficient that the New Secured Bonds or Existing Bond Claims appear on a system of general circulation (including a computer listing disseminated to subscribing brokers, dealers or traders) that provides a reasonable basis to determine fair market value by disseminating either recent price quotations or actual prices of recent sales transactions.  Also, under certain circumstances, debt is considered to be traded on an established market when price quotations for such debt are readily available from dealers, brokers or traders.  For debt exchanges occurring on or after November 13, 2012, debt is considered to be traded on an established market whenever a price quotation for such debt is available from a broker, dealer or pricing service (including a price provided only to certain customers or to subscribers).

 

If the New Secured Bonds are treated for U.S. federal income tax purposes as traded on an established market, the issue price of the New Secured Bonds will equal the fair market value of such bonds on the Effective Date.  If the New Secured Bonds are not treated, but the Existing Bond Claims are treated, for U.S. federal income tax purposes as traded on an established market, the issue price of the New Secured Bonds will equal the fair market value of the Existing Bond Claims on the Effective Date.  In either such event, the amount of a New Secured Bond’s OID will include the excess of its stated principal amount over its issue price.

 

If neither the New Secured Bonds nor the Existing Bond Claims are traded on an established market, the issue price for the New Secured Bonds should be the stated principal amount of the New Secured Bonds.

 

It is uncertain whether the Existing Bond Claims are, or whether the New Secured Bonds will be, traded on an established market.  If the Effective Date is on or after November 13, 2012 and the Reorganized Debtor determines that either the Existing Bonds Claims or the New Secured Bonds are traded on an established market within the applicable 31-day period described above, it also will determine the fair market value of such bonds on the Effective Date.  Such determinations will be binding on a U.S. Holder unless such holder discloses, on a timely-filed U.S. federal income tax return for the taxable year that includes the Effective Date, that such holder’s determination is different from the Reorganized Debtor’s determination, the reasons for such holder’s different determination and, if applicable, how such holder determined the fair market value.

 

A U.S. Holder generally must include OID in gross income as it accrues over the term of the New Secured Bonds using the “constant yield method” without regard to its regular

 

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method of accounting for U.S. federal income tax purposes, and in advance of the receipt of cash payments attributable to that income.

 

The amount of OID includible in income for a taxable year by a U.S. Holder generally will equal the sum of the “daily portions” of the total OID on the New Secured Bond for each day during the taxable year (or portion thereof) on which such holder held the bond.  Generally, the daily portion of the OID is determined by allocating to each day during an accrual period a ratable portion of the OID on such New Secured Bond that is allocable to the accrual period in which such day is included.  The amount of OID allocable to each accrual period generally will be an amount equal to the product of the “adjusted issue price” of a New Secured Bond at the beginning of such accrual period and its “yield to maturity.”  The “adjusted issue price” of a New Secured Bond at the beginning of any accrual period will equal the issue price, increased by the total OID accrued for each prior accrual period, less any cash payments made on such bond on or before the first day of the accrual period.  The “yield to maturity” of a New Secured Bond will be computed on the basis of a constant annual interest rate and compounded at the end of each accrual period.  For purposes of determining the yield to maturity, the assumption generally is that the Reorganized Debtor will pay interest in cash and not exercise the option to pay PIK interest, except in respect of any period in which the Reorganized Debtor actually elects to pay PIK interest.

 

If the Reorganized Debtor in fact pays interest in Cash on the New Secured Bonds, a U.S. Holder will not be required to adjust such holder’s OID inclusions.  Each payment made in cash under a New Secured Bond will be treated first as a payment of any accrued OID that has not been allocated to prior payments and second as a payment of principal.  A U.S. Holder generally will not be required to include separately in income cash payments received on the New Secured Bonds to the extent such payments constitute payments of previously accrued OID or payments of principal.

 

If, for any interest period, the Reorganized Debtor exercises its option to pay interest in the form of PIK interest, a U.S. Holder’s OID calculation for future periods will be adjusted by treating the New Secured Bond as if it had been retired and then reissued for an amount equal to its adjusted issue price on the date of the payment of PIK interest, and re-calculating the yield to maturity of the reissued bond by treating the amount of PIK interest paid for that interest period as a payment that will be made on the maturity date of such bond.

 

The Reorganized Debtor will have the unconditional option to repurchase the New Secured Bonds under certain circumstances at a premium to the issue price.  Under special rules governing this type of unconditional option, because the exercise of the option would increase the yield to maturity on the New Secured Bonds, the Reorganized Debtor will be deemed not to exercise the option, and the possibility of this redemption premium will not affect the yield to maturity of the bonds.

 

The rules regarding the determination of issue price and OID are complex, and the OID rules described above may not apply in all cases.  Accordingly, you should consult your own tax advisor regarding the determination of the issue price of the New Secured Bonds and the application of the OID rules.

 

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2.                   Acquisition Premium

 

The amount of OID includible in a U.S. Holder’s gross income with respect to a New Secured Bond will be reduced if the bond is acquired (or deemed to be acquired) at an “acquisition premium.”  A debt instrument is acquired at an “acquisition premium” if the holder’s tax basis in the debt is greater than the adjusted issue price of the debt at the time of the acquisition, but is less than or equal to the sum of all amounts payable on the debt after the acquisition date (other than payments of qualified stated interest).  A U.S. Holder may have an “acquisition premium” only if an exchange qualifies as a recapitalization for U.S. federal income tax purposes.  Otherwise, a U.S. Holder’s initial tax basis in a New Secured Bond will equal the issue price of the bond.

 

If a U.S. Holder has acquisition premium, the amount of any OID includible in its gross income in any taxable year with respect to its New Secured Bonds will be reduced by an allocable portion of the acquisition premium (generally determined by multiplying the annual OID accrual with respect to such New Secured Bonds by a fraction, the numerator of which is the amount of the acquisition premium, and the denominator of which is the total OID).  Alternatively, such holder may elect to recompute the OID accruals by treating its acquisition as a purchase at original issue and applying the constant yield method. Such an election may not be revoked without the consent of the IRS.

 

3.                   Sale, Redemption or Repurchase

 

Subject to the discussion above in ARTICLE X.C.3 of this Disclosure Statement, titled “Character of Gain or Loss,” and below with respect to market discount, U.S. Holders generally will recognize capital gain or loss upon the sale, redemption (including at maturity) or other taxable disposition of New Secured Bonds in an amount equal to the difference between the U.S. Holder’s adjusted tax basis in the New Secured Bonds and the sum of the cash plus the fair market value of any property received from such disposition.  Generally, a U.S. Holder’s adjusted tax basis in a New Secured Bond will be equal to its initial tax basis (as determined above), increased by any OID previously included in income.  If applicable, a U.S. Holder’s adjusted tax basis in a New Secured Bond also will be (i) increased by any market discount previously included in income by such U.S. Holder pursuant to an election to include market discount in gross income currently as it accrues, and (ii) reduced by any cash payments received on the New Secured Bond.

 

The gain or loss generally will be treated as capital gain or loss except to the extent the gain is treated as accrued market discount in which case it is treated as ordinary income, as discussed above in ARTICLE X.C.3 of this Disclosure Statement, titled “Character of Gain or Loss.”  Any capital gain or loss generally should be long-term if the U.S. Holder’s holding period for its New Secured Bonds is more than one year at the time of disposition.  A reduced tax rate on long-term capital gain may apply to non-corporate U.S. Holders. The deductibility of capital loss is subject to significant limitations.

 

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E.                 Information Reporting and Backup Withholding

 

Payments of interest (including accruals of OID) or dividends and any other reportable payments, possibly including amounts received pursuant to the Plan and payments of proceeds from the sale, retirement or other disposition of the New Secured Bonds, may be subject to “backup withholding” (currently at a rate of 28%) if a recipient of those payments fails to furnish to the payor certain identifying information, and, in some cases, a certification that the recipient is not subject to backup withholding.  Backup withholding is not an additional tax.  Any amounts deducted and withheld generally should be allowed as a credit against that recipient’s U.S. federal income tax, provided that appropriate proof is timely provided under rules established by the IRS.  Furthermore, certain penalties may be imposed by the IRS on a recipient of payments who is required to supply information but who does not do so in the proper manner.  Backup withholding generally should not apply with respect to payments made to certain exempt recipients, such as corporations and financial institutions.  Information also may be required to be provided to the IRS concerning payments, unless an exemption applies.  You should consult your own tax advisor regarding your qualification for exemption from backup withholding and information reporting and the procedures for obtaining such an exemption.

 

Treasury regulations generally require disclosure by a taxpayer on its U.S. federal income tax return of certain types of transactions in which the taxpayer participated, including, among other types of transactions, certain transactions that result in the taxpayer’s claiming a loss in excess of certain thresholds.  You are urged to consult your own tax advisor regarding these regulations and whether the contemplated transactions under the Plan would be subject to these regulations and require disclosure on your tax return.

 

ARTICLE XI.

 

CONFIRMATION AND CONSUMMATION PROCEDURE

 

A.                Plan Support Agreement

 

The Informal Bondholder Group  has agreed to vote in support of the Plan pursuant to the Plan Support Agreement.  For a more detailed discussion of the Plan Support Agreement, please see ARTICLE II.F.2.v of this Disclosure Statement, titled “The Plan Support Agreement.”

 

B.                Voting Procedures and Requirements

 

Before voting to accept or reject the Plan, each eligible holder of an Existing Bond Claim should carefully review the Plan attached to this Disclosure Statement as Exhibit “A” and described in ARTICLE IV of this Disclosure Statement, titled “The Plan of Reorganization.”  All descriptions of the Plan set forth in this Disclosure Statement are subject to the terms and conditions of the Plan.  The voting procedures are also explained on each Ballot.

 

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1.                   Voting Deadline

 

All known eligible holders of Existing Bond Claims in Class 2 have been sent a Ballot, together with this Disclosure Statement.  Such holders should read the Ballot carefully and follow the instructions contained therein.  Please only use the Ballot that accompanies this Disclosure Statement to cast your vote.  Special procedures are set forth below for holders of securities through a bank, broker, other nominee.

 

IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR VOTE MUST BE RECEIVED BY THE VOTING AGENT AT THE ADDRESS SET FORTH BELOW ON OR BEFORE THE VOTING DEADLINE OF 5:00 P.M., EASTERN TIME, ON [                       ], 2012.

 

The Debtor, upon the request of GE Capital and the Requisite Consenting Bondholders, may extend, by oral or written notice to the Debtor’s Voting Agent, the period of time (on a daily basis, if necessary) during which Ballots will be accepted for any reason including, but not limited to, determining whether or not requisite acceptances of the Plan have been received, by making a public announcement of such extension no later than 9:00 a.m. prevailing Eastern Time on the first Business Day next succeeding the previously announced Voting Deadline.  There can be no assurance that the Debtor will extend the Voting Deadline.

 

A BENEFICIAL OWNER HOLDING EXISTING BONDS IN “STREET NAME” THROUGH A NOMINEE MAY VOTE AS FURTHER DESCRIBED BELOW.

 

IF YOU MUST RETURN YOUR BALLOT TO YOUR BANK, BROKER, OR OTHER NOMINEE, OR TO THEIR AGENT, YOU MUST RETURN YOUR BALLOT TO THEM IN SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN A MASTER BALLOT TO THE VOTING AGENT BEFORE THE VOTING DEADLINE.

 

IF YOU HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE DEBTOR’S VOTING AGENT AT:

 

Epiq Bankruptcy Solutions, LLC

757 Third Avenue, Third Floor

New York, New York 10017

(646) 282-2400 or tabulation@epiqsystems.com

 

Additional copies of this Disclosure Statement, the Plan, and exhibits thereto are available upon request made to the Voting Agent, at the telephone number or email address set forth immediately above.

 

2.                   Certain Voting Procedures

 

The Debtor is providing copies of this Disclosure Statement (including all exhibits) and related materials and, where appropriate, the Ballot (collectively, a “Solicitation Package”), to holders of Existing Bond Claims.  Such holders may include brokerage firms, commercial banks, trust companies, or other nominees.  If such entities who are holders of Existing Bond Claims do not hold Existing Bonds for their own account, they must provide copies of this Disclosure Statement (including the Ballot) to their customers that are beneficial

 

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owners of Existing Bonds.  Any beneficial owner of Existing Bonds who has not received a Ballot should contact his, her or its nominee, or the Voting Agent.

 

Holders of Existing Bond Claims should provide all of the information requested by the Ballot.  Holders of Existing Bonds should complete and return all Ballots received in the enclosed, self-addressed, postage paid envelope provided with each such Ballot either to the Voting Agent or their nominee, as applicable.

 

3.      Voting Record Date

 

The Voting Record Date for determining which holders of Existing Bonds are entitled to vote on the Plan is October 2, 2012.

 

4.      Voting Agent

 

The Debtor has engaged Epiq as its Voting Agent to assist in the solicitation, transmission of voting materials and in the tabulation of votes with respect to the Plan.  Questions and requests for assistance with respect to Ballots may be directed to the Voting Agent at its address, telephone number or email address listed above in ARTICLE XI.B.1 of this Disclosure Statement, titled “Voting Deadline.”

 

The Voting Agent will tabulate all votes as each Ballot is received prior to the Voting Deadline for purposes of determining whether the eligible holders have accepted or rejected the Plan.

 

5.      Parties Entitled to Vote

 

Under the Bankruptcy Code, only holders of claims or equity interests in “impaired” classes are entitled to vote on a plan.  Under section 1124 of the Bankruptcy Code, a class of claims or equity interests is deemed to be “impaired” under a plan unless (i) the plan leaves unaltered the legal, equitable and contractual rights to which such claim or equity interest entitles the holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such claim or equity interest, the plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or equity interest as it existed before the default.

 

If, however, the holder of an impaired claim or equity interest will not receive or retain any distribution under the Plan on account of such claim or equity interest, the Bankruptcy Code deems such holder to have rejected the Plan and, accordingly, holders of such claims and equity interests do not actually vote on the Plan.  If a claim or equity interest is not impaired by the Plan, the Bankruptcy Code deems the holder of such claim or equity interest to have accepted the Plan and, accordingly, holders of such claims and equity interests are not entitled to vote on the Plan.

 

A vote may be disregarded if the Bankruptcy Court determines, pursuant to section 1126(e) of the Code, that it was not solicited or procured in good faith or in accordance with the provisions of the Code.

 

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Under the Plan, only holders Existing Bond Claims that are part of Class 2 are impaired and entitled to vote to accept or reject the Plan.  It is important that such holders of Existing Bond Claims exercise their rights to vote to accept or reject the Plan.

 

i.                                          Solicitation of Accredited Investors

 

The Debtor is soliciting the votes only of “Accredited Investors,” as that term is defined in the Securities Act.  For further detail concerning the exemption of the Solicitation and the New Secured Bonds from registration under the Securities Act, please see ARTICLE VII of this Disclosure Statement, titled “Exemption from Securities Act Registration.”

 

ii.                                       Beneficial Owners

 

A beneficial owner holding Existing Bonds as record holder in its own name and who is entitled to vote on the Plan should vote on the Plan by completing and signing the enclosed “Beneficial Owner Ballot” and returning it directly to the Voting Agent on or before the Voting Deadline, using the enclosed self-addressed, postage-paid envelope.

 

A beneficial owner holding Existing Bonds in “street name” through a nominee may vote on the Plan by one of the following two methods (as selected by such beneficial owner’s nominee):

 

·                  Complete and sign the enclosed Beneficial Owner Ballot.  Return the Ballot to the beneficial owner’s nominee as promptly as possible and in sufficient time to allow such nominee to process the Ballot and include its vote on a “Master Ballot” (as further described herein) and return it to the Voting Agent by the Voting Deadline.  If no self-addressed, postage paid envelope was enclosed for this purpose, please contact the Voting Agent for instructions; or

 

·                  Complete and sign the pre-validated Beneficial Owner Ballot (as described below) provided by such beneficial holder’s nominee.  Return the pre-validated Ballot to the Voting Agent by the Voting Deadline using the return envelope provided with the Disclosure Statement.

 

Any Beneficial Owner Ballot returned to a nominee by a beneficial owner will not be counted for purposes of acceptance or rejection of the Plan until such nominee properly completes and delivers to the Voting Agent a Master Ballot that includes the vote of such beneficial owner.

 

If any beneficial owner owns Existing Bonds through more than one nominee, such beneficial owner may receive multiple mailings containing the Beneficial Owner Ballots.  The beneficial owner should execute a separate Beneficial Owner Ballot for each block of Existing Bonds that it holds through any particular nominee and return each Ballot to the respective nominee in the return envelope provided therewith.  Beneficial owners who execute multiple Beneficial Owner Ballots with respect to Existing Bonds held through more than one nominee must indicate on each Beneficial Owner Ballot the names of ALL such other nominees and the additional amounts of such Existing Bonds so held and voted.

 

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iii.            Nominees

 

A nominee that is the registered holder of Existing Bonds for one or more beneficial owners can obtain the votes of the beneficial owners of such Existing Bonds, consistent with customary practices for obtaining the votes of securities held in “street name,” in one of the following two ways:

 

i.                  Pre-validated Ballots

 

The nominee may “pre-validate” a Beneficial Owner Ballot by (i) signing the Ballot; (ii) indicating on the Ballot the nominee’s DTC participant number, name of the registered holder, the amount of Existing Bonds held by the nominee for the beneficial owner, and the account numbers for the accounts in which such Existing Bonds are held by the nominee; and (iii) forwarding such Beneficial Owner Ballot, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope addressed to, and provided by, the Voting Agent, and other materials requested to be forwarded, to the beneficial owner for voting.  The beneficial owner must then complete the information requested on the Beneficial Owner Ballot, review the certifications contained on the Ballot, and return the Ballot directly to the Voting Agent in the pre-addressed, postage-paid return envelope so that it is received by the Voting Agent by the Voting Deadline.  A list of the beneficial owners to whom “pre-validated” Ballots were delivered should be maintained by nominees for inspection for at least one year from the Effective Date.

 

ii.               Master Ballots

 

If the nominee elects not to pre-validate Beneficial Owner Ballots, the nominee may obtain the votes of beneficial owners by forwarding to the beneficial owners the unsigned Beneficial Owner Ballots, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope provided by, and addressed to, the nominee, and other materials requested to be forwarded.  Each such beneficial owner must then indicate his, her or its vote on the Beneficial Owner Ballot, complete the information requested on the Ballot, review the certifications contained on the Ballot, execute the Ballot and return the Ballot to the nominee.  After collecting the Beneficial Owner Ballots, the nominee should, in turn, complete a Master Ballot compiling the votes and other information from the Beneficial Owner Ballots, execute the Master Ballot, and deliver the Master Ballot to the Voting Agent so that it is RECEIVED by the Voting Agent by the Voting Deadline.  All Beneficial Owner Ballots returned to a nominee by beneficial owners should be retained by nominees for inspection for at least one year from the Effective Date.

 

EACH NOMINEE SHOULD ADVISE ITS BENEFICIAL OWNERS TO RETURN THEIR BALLOTS TO THE NOMINEE BY A DATE CALCULATED BY THE NOMINEE TO ALLOW IT TO PREPARE AND RETURN THE MASTER BALLOT TO THE VOTING AGENT SO THAT IT IS RECEIVED BY THE VOTING AGENT BY THE VOTING DEADLINE.

 

6.     Miscellaneous

 

In the case of a vote on the Plan, all Ballots must be signed by the eligible holder of the Existing Bonds or any person who has obtained a properly completed Ballot proxy from the record holder of the Existing Bonds.  For purposes of voting to accept or reject the Plan, the

 

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beneficial owners of Existing Bonds will be deemed to be the “holders” of the Claims represented by such Existing Bonds.  Unless otherwise ordered by the Bankruptcy Court, Ballots that are signed, dated and timely received, but on which a vote to accept or reject the Plan has not been indicated, will not be counted.  Ballots received by email, facsimile or other electronic means will not be counted.  Ballots that do not contain an original signature will not be counted.  The Debtor, upon the request of GE Capital and the Requisite Consenting Bondholders, may request that the Voting Agent attempt to contact such voters to cure any such defects in the Ballots.

 

With respect to the tabulation of Ballots for the Existing Bonds, each holder will be deemed to have voted the principal amount of its Existing Bond Claim. Votes cast by beneficial owners through nominees will be applied to the applicable positions held by such nominees as of the Voting Record Date, as evidenced by the record and depository listings. Votes submitted by a nominee will not be counted in excess of the amount of Claims held by such nominee as of the Voting Record Date.  If conflicting votes or “over-votes” are submitted by a nominee, whether pursuant to a Master Ballot or pre-validated Beneficial Owner Ballot, the Debtor will use reasonable efforts to reconcile discrepancies with the nominees.  If over-votes on a Master Ballot or pre-validated Beneficial Owner Ballot are not reconciled, the Debtor shall apply the votes to accept and to reject the Plan in the same proportion as the votes to accept and to reject the Plan submitted on the Master Ballot or pre-validated Beneficial Owner Ballot that contained the over-vote, but only to the extent of the nominee’s Voting Record Date position.

 

The Bankruptcy Code defines “acceptance” of a plan by a class of claims or equity interests as acceptance by the threshold, i.e., creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the plan.  Under the Bankruptcy Code, for purposes of determining whether the requisite acceptances have been received, only eligible holders who actually vote will be counted.  The failure of a holder to deliver a duly executed Ballot will be deemed to constitute an abstention by such holder with respect to voting on the Plan and such abstentions will not be counted as votes for or against the Plan.

 

Except as provided below, unless the Ballot is timely submitted to the Voting Agent before the Voting Deadline together with any other documents required by such Ballot, the Debtor may, upon the request of GE Capital and the Requisite Consenting Bondholders, reject such Ballot as invalid, and therefore decline to utilize it in connection with seeking confirmation of the Plan.

 

7.     Fiduciaries and Other Representatives

 

If a Beneficial Owner Ballot is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or another acting in a fiduciary or representative capacity, such person should indicate such capacity when signing and, unless otherwise determined by the Debtor, must submit proper evidence satisfactory to the Debtor of authority to so act.  Authorized signatories should submit the separate Beneficial Owner Ballot of each beneficial owner for whom they are voting.

 

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