GenOn Energy – Seeks Modification of Third Amended Joint Plan and Cash Incentive Plan, Plans $400 million Secured Notes Offer

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October 11, 2018 – GenOn Energy filed a motion seeking to modify its (a) Third Amended Joint Plan of Reorganization and  (b) proposed cash incentive plan (the “Cash Incentive Plan”) [Docket No. 1858]. The Court documents explain, “The Debtors seek to implement final modifications to the Plan and the Cash Incentive Plan that, once approved, will facilitate the Debtors’ emergence from chapter 11. The proposed modifications enjoy the full support of the GenOn Steering Committee, which represents more than 80% of all GenOn Noteholders. Specifically, the relief requested herein would: authorize the Reorganized Debtors to issue and distribute $400 million of new secured notes (the ‘New Notes’), to holders of Allowed GenOn Notes Claims; authorize the Reorganized Debtors to backstop REMA’s funding obligations under a REMA chapter 11 plan of reorganization or out-of-court restructuring transaction; implement certain other technical modifications to the Plan that account for the Reorganized Debtors being a private company upon emergence; and clarify the Cash Incentive Plan to measure value creation by reference to recent market trading prices (i.e., par) of GenOn Notes instead of Reorganized GenOn’s equity (for which there will be no public market upon emergence) and an agreed benchmark for valuation creation among the GenOn Steering Committee (the ‘Technical CIP Modifications’). None of the modifications requested herein alter the unimpaired treatment of General Unsecured Creditors under the Plan. The interest rate is L+600-750 bps, payable semi-annually in cash (LIBOR benchmark rate and spread to be determined), subject to market condition adjustment, tax considerations, REMA resolution and other structural decisions to be made in connection with emergence.” 
 
The Technical CIP Modifications are “…measured based on the quantum of recoveries for Holders of GenOn Notes Claims under the Plan above a baseline threshold—a 68 percent recovery on account of such claims (i.e., approximately $1.275 billion) (the ‘Threshold Plan Recovery’)—which corresponds to the trading prices of GenOn bonds at the time the Cash Incentive Plan metrics were first agreed. Given the lack of an efficient public market or trading price for the equity post-emergence and that the Debtors expect to emerge in the near future, the Value Creation Incentive will now be calculated at an agreed amount which, among other things, corresponds with recent market trading prices of GenOn Notes and projected recoveries (i.e., approximately $1.875 billion)….Value Creation, for purposes of determining the Value Creation Bonus Pool only, is amended such that it will be calculated as the difference between: 100% of the Allowed GenOn Notes Claims ($1.875 billion) and the Threshold Plan Recovery ($1.275 billion). The Market AEV calculation shall be eliminated. Due to the removal of the 90-Day VWAP Period, any earned Value Creation Bonus Pool will be paid upon emergence instead of at the end of the VWAP Period.” The Court scheduled a hearing on the motion for November 1, 2018.

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