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FirstEnergy Unit Enters Letter of Intent To Sell Certain Merchant Assets

December 7, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott (at) energychoicematters.com

FirstEnergy's Allegheny Energy Supply Company LLC (AE Supply) unit has entered into a non-binding letter of intent, with an exclusivity provision which expires December 31, 2016, for the sale of its Springdale, Chambersburg, Gans and Hunlock gas-fired facilities and its ownership interest in the Bath hydroelectric facility, with a combined net book value of approximately $1,197 million.

The anticipated purchase price for these assets is $885 million, including approximately $305 million of indebtedness anticipated to be assumed by the buyer in connection with the consummation of the transaction.

The gas-fired plants total approximately 860 MW in capacity, and AE Supply's interest in Bath is 713 MW

FirstEnergy said in an 8-K that in the event that AE Supply enters into a definitive agreement with respect to this transaction, the closing will be subject to various closing conditions, including regulatory approvals and the receipt of third party consents. There is no assurance that AE Supply will enter into a definitive agreement with respect to the transaction described above, or that such transaction will be consummated on the terms described above, or at all, FirstEnergy said in the 8-K

As previously reported, FirstEnergy is engaged in a strategic review of its competitive operations, focused on the sale of gas and hydroelectric units within the competitive energy services segment as well as exploring all alternatives for the remaining generation assets at FirstEnergy Solutions (FES) and AE Supply, including, but not limited to, legislative efforts to convert generation from competitive operations to a regulated or regulated-like construct.

In the 8-K, FirstEnergy (FE) disclosed a $4 billion five-year syndicated revolving credit agreement and said that under the facility, material asset impairments resulting from the sale or deactivation of generation assets or from a determination by management of its intent to exit competitive generation assets before the end of their estimated useful life resulting from the inability to implement alternative strategies, adverse judgments or an FES bankruptcy filing are not expected to result in an event of default for FirstEnergy under the new facility or a new FirstEnergy term loan that was also disclosed, "although FE cannot provide any assurance that any charges for material asset impairments at FES, AE Supply or their subsidiaries will not jeopardize FE’s ability to comply with the debt to capitalization ratio covenant described above."

"Adverse outcomes in coal transportation contract disputes, the inability to refinance 2018 debt maturities, or lack of viable alternative strategies could cause FES to take one or more of the following actions: (i) restructuring of debt and other financial obligations, (ii) borrowings under the New FES Secured Facility, (iii) further asset sales or plant deactivations, and/or (iv) seek protection under bankruptcy laws. There are significant commercial and other relationships among FE, FES and other FE subsidiaries, including, but not limited to, AE Supply and FENOC [FirstEnergy Nuclear Operating Company]. These relationships include shared services, cash management, intercompany loans, tax sharing and energy-related purchases and sales, among others, which would be subject to review and possible challenge in the event of an FES bankruptcy proceeding. FE is unable to estimate the outcome of such challenges or other claims arising out of an FES bankruptcy proceeding, any resulting material losses, obligations or other liabilities of FE and/or its consolidated subsidiaries or their possible material adverse effect on the business, results of operations and financial condition of FE and its consolidated subsidiaries, including, but not limited to, AE Supply. In the event FES seeks protection under the bankruptcy laws, FENOC may similarly seek protection under bankruptcy laws," FirstEnergy said in the 8-K

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