HOME > News

NRG Energy Enters into Agreement to Acquire Edison Mission Energy

published: 2013-10-21 10:12

NRG Energy, Inc. has entered into a plan sponsor agreement with Edison Mission Energy (EME), certain of EME’s subsidiaries, the unsecured creditors committee, certain of EME’s unsecured noteholders, and the parties to the Powerton and Joliet sale leaseback transaction to acquire substantially all of the assets of EME, including its equity interests in certain of its subsidiaries, for an aggregate purchase price of $2,635 million (or $1,572 million net of $1,063 million retained cash within EME). The aggregate purchase price, which is subject to certain post-closing adjustments, will consist of approximately 12.7 million shares of NRG common stock (valued at $350 million based upon the volume-weighted average trading price of the 20 trading days prior to October 18, 2013) with the balance to be paid in cash on hand. In connection with the transaction, NRG will also assume non-recourse debt of approximately $1,545 million, of which $273 million is associated with assets designated as Non-Core Assets pursuant to the asset purchase agreement.

EME and NRG have entered into an asset purchase agreement, dated October 18, 2013. The acquisition and transactions contemplated in the purchase agreement will be consummated as part of an EME Chapter 11 plan of reorganization to be sponsored by NRG. Each of EME’s major stakeholders has agreed to support and pursue a Chapter 11 plan sponsored by NRG.

The assets to be acquired include:

• EME’s generation portfolio, which consists of nearly 8,000 net MW of generation capacity located throughout the US:
o 1,700 MW of wind capacity
o 1,600 MW of gas-fired capacity
o 4,300 MW of coal-fired capacity
o 400 MW of oil and waste coal-fired capacity
• Edison Mission Marketing and Trading, a proprietary trading and asset management platform

“Edison Mission Energy is a great fit with NRG, as virtually 100% of their assets, their particular expertises and the balance of their technologies deployed complement NRG’s own assets, personnel and businesses,” said David Crane, President and CEO of NRG Energy. “We look forward to working with EME’s employees, its management and its owners to close this transaction expeditiously and ensure that the ensuing integration achieves the best possible outcome for all concerned.”

Strategic and Financial Benefits

• Growing NRG’s Clean Energy Platform
With the transaction, NRG and its affiliates will become the 3rd largest US-based renewable energy generator within the US with over 2,900 net MW of wind and solar capacity in operation or under construction. This transaction will substantially increase both the scale and geographic diversity of NRG’s renewable generation portfolio by almost quadrupling NRG’s existing wind generation capacity with the addition of 1,700 net MW of wind capacity, including 1,150 net MW of wind outside of NRG’s existing renewable footprint in Texas and the Southwest.

• Significantly Expanding Opportunities for Future NYLD Drop-Downs
The EME portfolio contains 2,600 net MW of fully-contracted generation, of which 1,600 MW are under long-term contracts with credit-worthy counterparties (with a weighted average remaining contract life of 14 years) – consistent with the profile of assets suitable for drop-down to NYLD. This contracted portfolio is composed of 1,100 net MW of wind capacity and the 500 MW gas-fired Walnut Creek facility, which achieved final commercial operations during the summer of 2013.

• Enhancing NRG’s Core Generation Platform
NRG continues to balance the geographic distribution and dispatch-level diversity of its conventional generation fleet by adding 1,200 MW of contracted gas assets in California and 4,300 MW of coal-fired capacity in PJM West.

• Leveraging Operational Efficiency Programs to Improve Financial Performance
NRG expects to leverage key competencies built from its successful GenOn integration to achieve cost synergies and operational improvements that will significantly enhance the financial performance of the portfolio. With EME’s coal fleet, NRG will further capture commercial opportunities in PJM through its operational improvement initiative.

Financial Terms – Purchase Price

The aggregate purchase price for EME’s assets and equity interests in subsidiaries is $2,635 million. In addition, approximately $350 million of the purchase price will be paid in the form of 12.7 million shares of NRG common stock. NRG intends to fund the cash portion of the purchase price using a combination of cash on hand and newly issued corporate debt in an amount which permits continued adherence to NRG’s prudent balance sheet management target metrics. Further, NRG expects to acquire $1,063 million of cash and assume non-recourse debt of approximately $1,545 million, of which $273 million is associated with assets designated as Non-Core Assets pursuant to the asset purchase agreement. The purchase price is subject to certain post-closing adjustments.

Financial Terms – Powerton/Joliet Lease (PoJo)

In connection with the transaction, NRG has agreed to certain financial conditions with the PoJo lessor stakeholders subject to which an NRG subsidiary will assume the PoJo leveraged each lease and NRG will guarantee the remaining payments under each lease. In connection with this agreement, NRG has committed to fund up to $350 million in capital expenditures for plant modifications at Powerton and Joliet to ensure Mercury and Air Toxics Standards (MATS) compliance. All monetary defaults under each lease will be cured at closing.

Approvals and Time to Close

EME intends to file a motion to seek approval of the plan sponsor agreement with the United States Bankruptcy Court for the Northern District of Illinois (Bankruptcy Court) on October 18, 2013. The hearing to approve the plan sponsor agreement is expected to occur on or before October 25, 2013. EME will then file a motion to seek approval of a Chapter 11 plan of reorganization (Plan) and a related disclosure statement. EME intends to seek approval of the Plan during the first quarter of 2014. Given the current pendency of matters with the Bankruptcy Court, NRG intends to be circumspect in terms of the immediate provision of additional information regarding the transaction. If all matters before the Bankruptcy Court are resolved in accordance with the current schedule, NRG expects to be in a position to answer questions about the proposed transaction on its third quarter investor call scheduled for November 12, 2013. Additional details regarding the terms of the agreements are set forth in the Form 8-K and the Registration Statement on Form S-1 filed by NRG with the Securities and Exchange Commission (SEC), and the Form 8-K filed by EME with the SEC, on October 18, 2013.

NRG expects to close the transaction in the first quarter of 2014. In addition to the approval of the Bankruptcy Court, the transaction is subject to customary closing conditions, including the effectiveness of the registration statement and approval for the listing of the NRG common stock on the NYSE, and receipt of regulatory approval by the Federal Energy Regulatory Commission (FERC), the U.S. Department of Justice and the Federal Trade Commission under the Hart-Scott-Rodino Act and the Public Utility Commission of Texas. EME will also submit notice of the acquisition to the California Public Utilities Commission. Further, EME may continue to solicit alternative transaction proposals from third parties through December 6, 2013. If EME’s board of directors determines, consistent with its fiduciary duties, that another proposal or proposals is better for EME and its stakeholders than the terms of this transaction, NRG will have advance notice of EME’s intention to terminate the purchase agreement. Under specified circumstances, including if EME enters into or seeks approval of certain alternative transactions, and following approval from the Bankruptcy Court, NRG will be entitled to receive a cash fee of $65 million and expense reimbursement to the extent the plan sponsor agreement and asset purchase agreement are terminated.

Baker Botts LLP is serving as legal counsel to NRG. Barclays Capital Inc. and Deutsche Bank Securities Inc. are acting as financial advisors to NRG.

Kirkland & Ellis LLP is serving as legal counsel to EME. J.P. Morgan Securities LLC and Perella Weinberg Partners, LP are acting as financial advisors to EME.

announcements add announcements     mail print