At least eight of the company’s 18 power plants rely on natural gas to make electricity, which means that when prices spiked in recent months, Talen was “exposed to market price volatility” restructuring adviser
Talen’s strategy of using derivatives to manage commodity and power market volatility backfired when power and natural gas prices spiked last year, according to the filing. The hedges forced the company to post more cash collateral for its counterparties, sparking a “significant liquidity squeeze,” Omohundro said.
“These liquidity requirements were much greater than the (company) could have anticipated or were capable of financing,” he said.
Talen Energy Supply, the company’s debt-issuing vehicle, said it had struck a restructuring deal with a group of bondholders that will see the creditors inject up to $1.65 billion of new equity, according to a
TES also obtained $1.76 billion of bankruptcy financing from a group of banks including Citigroup Inc., Goldman Sachs Group Inc., and Royal Bank of Canada. That consists of a $1 billion term loan, a $300 million revolving credit facility, and a $458 million letter of credit facility, the U.S. company said in a statement.
Parent company Talen Energy Corp. and its crypto mining unit didn’t file for bankruptcy.
Talen, based in The Woodlands, Texas, listed both assets and debt of more than $10 billion in its Chapter 11 petition filed in Houston. A Chapter 11 filing allows a company to continue operating while it works out a plan to repay creditors. The
As part of its bankruptcy, Talen also filed a $900 million
The company, which operates in several Texas cities, was hit hard by the state’s freeze and power crisis in early 2021. The
Talen entered 2022 largely without hedges, which helped it profit from higher power prices, but the company was squeezed by higher gas prices and struggled to find hedging counterparties due to its risky debt profile, people with knowledge of the matter previously
The case is Talen Energy Supply,
(Adds first-day hearing time in fifth paragraph. A previous version of this story corrected the unit filing for bankruptcy.)
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