By Nick Brown
Dec 15 (Reuters) - Edison Mission Energy, a power company
that operates in more than a dozen U.S. states, is preparing a
possible bankruptcy filing as it tries to restructure about $5
billion in debt, according to a source close to the matter.
Edison Mission, the unregulated power generation business of
Edison International, is unlikely to make an interest payment on
bonds due on Monday and is preparing a bankruptcy filing as
early as Sunday to avoid default, according to the source, who
declined to be identified because plans are still being
finalized.
Spokesmen for Edison International and Edison Mission did
not respond to requests for comment. An investor relations
representative for Edison International declined to comment.
Edison Mission, based in Santa Ana, California, owns and
operates coal, natural gas and renewable power plants totaling
more than 10,000 megawatts in states including California,
Illinois, Pennsylvania and West Virginia.
It has suffered as the 2008 recession cut power demand.
Wholesale power prices have also fallen with cheaper natural
gas, making it harder for Edison's coal-fired plants to remain
competitive.
Edison Mission faces the expiration on Monday of a 30-day
grace period for a $97 million interest payment that was due
last month on unsecured bonds. In mid-November, the company said
it would likely file for Chapter 11 protection if it could not
make the payment.
Edison is hoping to secure some creditor support for its
plans ahead of a bankruptcy, the source said. But the person
added that the filing is not expected to be a "prepackaged"
bankruptcy, in which the terms of the reorganization are largely
prearranged with most of the creditors.
Edison Mission owes roughly $3.7 billion in unsecured bonds.
A large portion of that is held by a group of hedge funds
including York Capital Management, which invests heavily in
distressed debt.
Edison's subsidiaries hold roughly $1.5 billion in other
debt, the source said.
The company has hired restructuring lawyers from Kirkland &
Ellis and financial advisers from Moelis. Its bondholders have
tapped law firm Ropes & Gray and financial adviser Houlihan
Lokey.
Like many other owners of older coal plants, Edison faces
costly upgrades to meet stricter state and federal emission
standards to keep its coal plants running. It has already
announced plans to shut some coal-fired plants in Illinois
rather than invest to clean them up.
As part of a restructuring, Edison International Chief
Executive Ted Craver has told investors that Edison Mission may
also have to refinance leveraged leases at two coal plants
leased by Edison Mission's Midwest Generation unit.
The bondholders who financed those leases have hired
restructuring lawyers from Cadwalader Wickersham & Taft.
It is unclear how Edison Mission's unsecured debt would be
restructured if the company filed for bankruptcy. Bondholders
traditionally demand equity in a reorganized company, but for
Edison International, giving up equity in Edison Mission could
mean losing certain tax breaks related to operating losses, said
the person familiar with the matter.
Federal tax laws allow companies to offset taxable income
with operating losses at their subsidiaries, but only if they
retain at least 80 percent of the unit's equity.
(Additional reporting by Eileen O'Grady)
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