Talen Energy’s Chapter 11 plan draws objection from bond trustee

By Sarah Lizee

Olympia, Wash., Oct. 19 – Talen Energy Supply LLC’s disclosure statement for its Chapter 11 plan drew a limited objection from bond trustee Bank of New York Mellon, according to court documents filed with the U.S. Bankruptcy Court for the Southern District of Texas.

The trustee said it generally supports the proposed restructuring under the plan, wherein an equitization transaction would turn over control of the debtors to members of the informal group holding the majority of unsecured notes and series A Pennsylvania Economic Development Financing Authority (Pedfa) bonds, or a sale transaction will take place.

However, if the equitization transaction moves forward, the plan must provide equal treatment to all members of class 4, which is comprised of the holders of the unsecured notes and the series A Pedfa bonds, the trustee said.

“As proposed, the plan fails to treat all members of class 4 equally and is therefore patently unconfirmable,” the trustee stated.

“Solicitation of the plan, in its current form, would be a futile exercise.”

Under the equitization transaction, holders of the unsecured notes and the series A Pedfa bonds would receive three forms of distribution on account of their claims: new common equity; 1145 subscription rights; and 4(a)(2) subscription rights.

However, in order to qualify for the private placement exemption under section 4(a)(2) of the Securities Act of 1993, the debtors can only offer these rights to certain types of holders, i.e., accredited investors.

So, in order to assure that holders who are not accredited investors receive equivalent value under the plan, the plan proposes to give them additional new common equity or cash in the amount of the value of the 4(a)(2) subscription rights.

However, the plan conditions the holder’s right to receive a distribution on account of 4(a)(2) subscription rights upon whether it decides to exercise its 1145 subscription rights.

The trustee said it believes this condition reduces the opportunity for recovery for some but not all members of the same class.

Houston-based Talen Energy Supply is one of the largest competitive power generation and infrastructure companies in North America. The company filed bankruptcy on May 9 under Chapter 11 case number 22-90054.

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