Lights dim as Entegra files for Chapter 11

October 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

The Entegra Power Group LLC, and a number of its subsidiaries, filed for pre-packaged Chapter 11 bankruptcy protection in August citing debts of approximately $1.5bn.

Florida based Entegra made its filing at the US Bankruptcy Court in Wilmington, Delaware, with a bankruptcy plan designed to cut its outstanding debt pile by around half. Entegra and 11 of its subsidiaries – Entegra TC LLC, Basso TP-2 Inc, EPG LLC, Union Power LLC, Union Power Partners LP, UPP Finance Co. LLC, Trans-Union Pipeline LLC, Trans-Union Interstate Pipeline LP, Entegra Power Services LLC, Union Power Employee Co LLC and Gila River Energy HoldCo LLC – sought approval from its creditor group for the plan before filing the documentation. Despite the filing, Entegra has noted that there will be no interruption to its energy services.

In order to reduce the company’s existing debt, Entegra’s pre-packaged plan calls for approximately $788m of new debt to be issued, as well as allowing creditors to participate in a partial debt-for-equity swap. The firm’s second lien lenders, who are owed $237m, will receive a combination of new third year, Series A second lien notes and cash that will be raised from new Series B second lien notes. Entegra’s third lien lenders will exchange their $1.3bn in claims for $550m in new third lien debt and a controlling ownership of the company when it eventually emerges from bankruptcy protection. According to Entegra’s filing, all of the company’s second lien lenders and over two-thirds of the third lien lenders support the restructuring plan. The second lien facility will serve as the senior debt, as a result of the maturation of a first lien facility in December 2013.

Before opting for Chapter 11 restructuring, the firm did pursue new financing. According to Entegra’s president and chief executive Michael Schuyler, the company “attempted to obtain new senior secured financing from outside lenders but determined that such financing could not be obtained on commercially reasonable terms”. Given Entegra’s inability to secure further funding, it made the decision to file for Chapter 11 instead. In a statement Mr Schuyler noted that “the plan contemplates a comprehensive financial restructuring of the debtors’ capital structure that will reduce the debtors’ leverage and place the debtors in a stronger financial position for future competitive and strategic initiatives”.

Entegra, an independent pipeline and power plant operator, has stakes in two of the largest gas-fired generation plants in the US and markets the electricity they produce to wholesale customers in the Southeast and Southwest regions. However, the company has struggled recently as a result of a sharp decline in wholesale electricity prices and the competitive nature of the energy industry in the US. The expansion of natural gas production has had a negative impact on energy prices. New extraction techniques and the discovery of an abundance of fresh shale deposits across the US have helped to drive down wholesale market prices.

The firm’s court documentation notes that with the majority of Entegra’s substantial debt pile due to mature in October 2015, the company felt that it had no option but to file for bankruptcy protection in August. A $1.3bn third lien loan facility, administered by Wells Fargo Bank NA, was among those due to expire next year. “Due to the current economic environment, among other things, the debtors have determined that they will be unable to satisfy all of their obligations” under the prepetition credit agreements, added Mr Schuyler.

According to court documentation, Entegra, which was founded in 2005, employs 91 full time members of staff, 42 of which are based at the firm’s headquarters in Tampa, Florida. The remainder are based at the firm’s El Dorado, Arkansas plant.

Richard Summerfield