Independent power producer Edison Mission Energy failed to pay a $97 million interest on its unsecured bonds and may declare bankruptcy next month.
Edison Mission, a subsidiary company of Edison International, announced its plan in a filing with the Securities & Exchange Commission. The deadline for the interest payment has a grace period until Dec. 17.
If the company fails to pay within that period, it said it will likely lead to a bankruptcy filing.
Edison International and Edison Mission are discussing a possible financial restructuring with legal and financial advisers.
Since prices of power have declined, the energy sector has been struggling. Edison Mission has devoted months in talks with debt holders hoping to restructure unsecured bonds amounting to $3.7 billion.
CEO Ted Craver acknowledged a potential restructuring as soon as February. He said that low power prices, approaching debt maturities and the necessity for retrofit investments may push the business into bankruptcy.
Edison Mission has retained financial consultants from Moelis and restructuring attorneys from Kirkland & Ellis, according to persons who have knowledge regarding the matter. The bondholders hired lawyers from Ropes & Gray and financial consultants from Houlihan Lokey, they said.
Filing bankruptcy entails certain problems. Edison Mission may need to refinance its leases at two of its plants, according the Craver.
The bondholders who funded those leases hired attorneys from Cadwalader Wickersham & Taft, said the two people who are knowledgeable about the matter.
Another issue is how to go about the restructuring of debt. Bondholders usually require equity in a restructured business, but if Edison International gives up equity in its subsidiary it will lose tax breaks on the operating losses of Edison Mission.
A holding company or parent company needs to maintain at least 90 percent of its subsidiary’s equity so that it can offset taxable revenue with operating losses in accordance with the federal laws.
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