AES Eastern Energy Limited Partnership (AES Eastern Energy) and certain affiliated entities have reached an agreement in principle on a non-binding term sheet for the sale of their Somerset and Cayuga coal-fired electrical generation plants to an entity sponsored by holders of pass-through trust certificates issued in connection with a leveraged lease transaction that financed the acquisition of the plants. Holders of a majority of the pass-through trust certificates have indicated their support for the transaction, which remains subject to definitive documentation, higher and better offers in an auction process, and approval by the United States Bankruptcy Court for the District of Delaware, all as may be required by the bankruptcy laws.
Attached as Exhibits A and B, respectively, are a non-binding Restructuring Term Sheet and AES Eastern Energy financial projections previously provided to certain holders of pass-through certificates pursuant to confidentiality restrictions. The projections and other financial information reflects the views of the company as of a date in the past and the company is releasing these projections for informational purposes only with no representation as to the company's current views. Moreover, the company undertakes no obligation to release updated projections or other financial information.
Safe Harbor Disclosure
This news release contains forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES Eastern Energy’s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to, our projections of future commodity prices, continued normal levels of operating performance at our generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth investments at normalized investment levels and rates of return consistent with prior experience.
Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. AES Eastern Energy undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Restructuring Term Sheet dated December30, 2011
This term sheet and the terms hereof do not constitute an offer of any securities for sale or a solicitation of an offer to buy any securities.
The undersigned Parties (as defined below) support the principal terms and conditions outlined in this term sheet (the “Term Sheet” and, the transactions contemplated thereby, the “Sale Transaction”) and the Parties agree to use good faith efforts to negotiate definitive documents consistent with this Term Sheet. By executing this Term Sheet, the Parties are not agreeing to the transactions described or contemplated herein; such agreement shall occur upon the execution of definitive documents implementing the Settlement (as defined below) and Sale Transaction, in each case, in a manner consistent with this Term Sheet. This Term Sheet is not an offer or solicitation for any chapter 11 plan and is being presented for discussion and settlement purposes only. This Term Sheet is subject to Federal Rule of Evidence 408 and any state law equivalents.
By accepting delivery of this Term Sheet, you agree, absent written consent from AEE (as defined below) to the contrary and until the commencement of the Cases (as defined below), that (a) this Term Sheet is for your confidential use during the course of negotiations among the Parties and (b) you will not disclose the existence of this term sheet or the terms hereof to any person other than your legal or financial advisors, or as otherwise dictated by any applicable confidentiality agreements between or among any of the relevant Parties, and then only on a confidential and “need to know” basis.
PARTIES | The parties to this Term Sheet are AES Eastern Energy, L.P., AES Somerset, LLC, AES Cayuga, LLC, AES NY3, LLC, and, to the extent applicable, Somerset Railroad Corporation (“SRC” and, collectively with the preceding entities, “AEE”), the undersigned members of the Ad Hoc Committee of Pass-Through Certificate Holders (the “Holders”), and Deutsche Bank Trust Company Americas, as indenture trustees (the “Trustee” and, together with the foregoing parties, the “Parties”). | |
OVERVIEW OF TRANSACTION | The Parties will settle a series of disputes and potential disputes (such settlement pursuant to the terms herein, the “Settlement”) on various issues regarding the transactions attending the 1999 acquisition of the Somerset and Cayuga generating stations (the “1999 Transaction”) in order to preserve going-concern value, conserve assets of the estates for the benefit of all creditors, and effectuate an efficient transfer of the Somerset and Cayuga facilities and related assets (the “Transferred Assets”) to an entity designated by the Holders (“Newco”), subject to higher and better offers in an auction process. The several terms of the Settlement shall each constitute necessary elements of a single, fully integrated settlement, and the approval of all of the terms herein shall be a condition of consummating the Settlement and Sale Transaction. If any of the terms herein are not approved by the Bankruptcy Court in the Cases and such approval requirement is not waived by AEE and the Trustee, the Parties shall be restored to the status quo ante as it existed prior to the execution of this Term Sheet, and all of the Parties’ respective rights, claims, interests, arguments, and defenses shall be fully preserved. The Settlement and any implementing transactions will be effectuated in chapter 11 cases (the “Cases”) to be filed on or about December 30, 2011 (the “Petition Date”) by AEE and related debtors. Solely for purposes of the Settlement, the Parties stipulate that the obligations arising from the 1999 Transaction shall be treated as a secured financing as of the Petition Date, with the Trustee holding and controlling an allowed claim in the amount of $600,000,000, secured by the Adequate Protection Liens (as defined below) and the Trustee’s existing valid and perfected first priority security interests in and liens on the Transferred Facilities and other assets comprising the Indenture Estate (as defined in the documents evidencing the 1999 Transaction) (the “Secured Claim”). AEE and the Holders shall enter into an asset purchase agreement providing for the acquisition of the Transferred Assets by Newco free and clear of any claims or interests pursuant to section 363(b) and (f) of the Bankruptcy Code. Newco will be a stalking horse bidder with a purchase price equal to the sum of (a) a credit bid of $300,000,000 (which may include the value of any Adequate Protection Liens (as defined below), which the Trustee shall have the right to credit bid); (b) the value of the Assumed Liabilities; (c) cash in the amount of $5,000,000 (the “Cash Payment”), provided, however, that the Cash Payment may be reduced or increased by the Coal/AR Adjustment (defined below); (d) any remaining cash in the Deutsche Bank Depository Accounts as of the closing of the Sale Transaction; and (e) to the extent the transfer date does not occur on or prior to March 30, 2012, additional cash consideration equal to the operating losses, if any, of the Transferred Assets for the period from April 1, 2012 to the transfer date, which shall include AEE overhead at a market rate to be agreed upon by the Parties but not restructuring costs for such period (collectively, the “Purchase Price”). The Cash Payment will be adjusted (the “Coal/AR Adjustment”) by the difference between (i) the value as of the closing of the Sale Transaction of (x) coal either located at the Somerset and Cayuga facilities or paid for by AEE and not yet delivered and (y) accounts receivable related to the operations of AES Eastern Energy, L.P. and (ii) the Minimum Coal/AR Balance (defined below). The Trustee shall have an allowed general unsecured claim (such claim, the “Residual Claim”) against AES Eastern Energy, L.P. in the amount of $300,000,000, less the amount by which the proceeds realized through a Third Party Sale (defined below) exceed the Purchase Price. In the event that the amount of the credit bid is increased at a later date, the amount of the Residual Claim will be reduced on a dollar-for-dollar basis. The definitive documents implementing the Sale Transaction shall have representations, warranties, covenants, and conditions customary for sale transactions consummated pursuant to Bankruptcy Code section 363(b) and (f), including, without limitation, a covenant that, until the closing of the Sale Transaction or a Third Party Sale (as defined below), AEE shall operate the Somerset and Cayuga facilities and any related assets in the ordinary course of business, in a manner consistent with past practices, and in accordance with a budget reasonably acceptable to the Trustee, subject to available liquidity and AEE’s fiduciary obligations. In the event Newco is the not the successful bidder in any sale of any of the Transferred Assets, the entirety of the proceeds of any such sale (a “Third Party Sale”), to the extent the proceeds relate to the Transferred Facilities, shall be applied at closing of such Third Party Sale to repay the Trustee’s claims arising from the 1999 Transaction. The Settlement and Sale Transaction shall be subject to all necessary approvals of the Bankruptcy Court and any applicable governmental regulatory authorities. | |
TIMELINE | The Parties shall cooperate and use best efforts to effectuate the Settlement and Sale Transaction on the following timeline: December 30, 2011: Chapter 11 filing January 4, 2011: File motion to approve the Settlement (based on the Term Sheet) File bidding procedures motion January 15, 2012: File definitive agreement documenting the Settlement Commence negotiations with unions Commence negotiations with NYSEG January 30, 2012: Bankruptcy Court approval of motion seeking approval of the Settlement and bid procedures for the Sale Transaction Filing of all permit applications Filing of FERC FPA 203 and NYPSC applications Filing of antitrust notifications, if required File section 1113 motion, if necessary File action to sever Interconnection Agreement, if necessary March 15, 2012: Bankruptcy Court approval of the Sale Transaction March 30, 2012: Closing of Sale Transaction | |
TRANSFERRED ASSETS1 | AEE shall transfer the following assets to Newco, pursuant to Bankruptcy Code section 363(b) and (f), free and clear of any and all claims, interests, or any liabilities of any kind (including any of the foregoing premised on any theory of successor liability):
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CONTRACTS | AEE shall assume and assign contracts as designated by Newco, no later than January 30, 2012, following diligence by Newco of the specific contracts available for assumption and assignment and the cure costs identified by AEE related thereto, provided, however, that to the extent the counterparty to a contract objects to the proposed cure amounts, Newco may exclude such contract from designation for assumption. Newco shall be responsible for paying any cure costs associated with such assumption and assignment. AEE shall have no obligation to assume or assign any insurance contracts or any contracts for services provided by The AES Corporation and affiliates (other than AEE), except for the Coal Hauling Agreement. | |
EXCLUDED ASSETS |
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ASSUMED LIABILITIES | Newco shall assume the following liabilities:
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ADEQUATE PROTECTION & USE OF CASH | In the event that the Settlement is approved, all funds in the Deutsche Bank Depositary Accounts (including all sub-accounts) as of the Petition Date shall be deemed and treated as cash collateral and will be available for AEE’s use in accordance with a 13 week cash flow statement reasonably acceptable to the Trustee, subject to a carve out for AEE’s professionals reasonably acceptable to the Trustee. Among other cash collateral rights and forms of adequate protection customarily afforded to secured parties, the Trustee shall be entitled to adequate protection for AEE’s use of and any diminution in value in such cash collateral and the Transferred Assets in the form of replacement liens on and security interests in all of the Transferred Assets in which the Trustee otherwise does not have a first priority security interest or lien in an amount equal to the value of the cash in the Deutsche Bank Depositary Accounts as of the Petition Date (all of the foregoing replacement security interests and liens, the “Adequate Protection Liens”) and reimbursement of the Trustee’s prepetition and postpetition professional fee-related expenses. The Trustee shall be entitled to credit bid the value of such Adequate Protection Liens in connection with the sale of the Transferred Assets. In the event the Settlement is approved, upon the closing of the sale, any remaining cash in the Deutsche Bank Depository Accounts shall be applied to the Purchase Price and shall no longer be deemed cash collateral. In the event the Settlement is approved and the Transferred Assets are sold pursuant to the terms hereof, AEE shall waive all rights against the Trustee under section 506(c) of the Bankruptcy Code. In the event the Settlement is not approved, the parties reserve all of their respective rights as to (i) whether the funds in the Deutsche Bank Depository Accounts constitute cash collateral, and (ii) whether such funds can be used in satisfaction or partial satisfaction of section 506(c) of the Bankruptcy Code. The JPMorgan Rent Reserve Account shall be remain held by JPMorgan for the benefit of the Trustee and subject to the Rent Reserve Payment Undertaking Agreement. | |
EMPLOYEES3 | Newco will offer employment to a substantial portion of the personnel employed by AEE who provide services to the Somerset and Cayuga facilities. Newco will designate which employees of The AES Corporation (“AES”) and its subsidiaries (other than AEE) that it wishes to employ. AEE and Newco shall use best efforts to negotiate any necessary release of such employees from AES employment. Newco will be responsible for all negotiations with collective bargaining units and AEE will cooperate with all such efforts and shall make a proposal consistent with Newco’s offer in satisfaction of the bargaining requirements of Bankruptcy Code section 1113. Newco shall work with AEE in good faith to enter into an agreement whereby certain employees would be made available to AEE to assist in the wind-down of AEE, provided that AEE reimburses Newco for an appropriate allocation of such employees’ compensation. | |
CONDITIONS PRECEDENT | The consummation of the Settlement and the Sale Transaction is conditioned on (i) the filing of a definitive agreement documenting the Settlement by January 15, 2012; (ii) entry of orders of the Bankruptcy Court approving the Settlement and bid procedures for the Sale Transaction by January 30, 2012; (iii) the entry of an order of the Bankruptcy Court approving the Sale Transaction by March 15, 2012; (iv) the obtainment of applicable regulatory approvals in connection with the Transferred Assets, (v) the obtainment or transfer of all required permits in connection with the Transferred Assets, and (vi) the failure by Newco to deliver to AEE by January 30, 2012 a written notice indicating its dissatisfaction with the environmental condition of the Transferred Assets, unless a reasonable amount of additional time is required to resolve any potentially material issue(s) identified in a Phase I environmental site assessment; provided, however, that the milestones contained herein may be extended upon agreement of the Parties. Confirmation of a plan of reorganization is not a condition precedent to the Settlement or the Sale Transaction, but the Parties will work in good faith toward confirmation of a plan as promptly as possible. | |
RELEASES | The Settlement will include mutual releases among the Parties (including officers, directors, employees and professionals), subject to a carveout for the Residual Claim. | |
MISCELLANEOUS | In the event the Settlement is not consummated or the Settlement or the Sale Transaction is not approved by the Bankruptcy Court, (i) the Parties agree that the motion to approve the Settlement shall alternatively be deemed a motion to reject the Somerset and Cayuga Facility Leases, filed as of the chapter 11 filing date, with the Parties reserving all of their respective rights with respect to the rejection effective date and the amount, if any, of any administrative claim of the Trustee, in each case, with respect to such Lease, and (ii) to the extent necessary, the Debtors will use reasonable efforts to cooperate with the Trustee in determining the post-rejection ownership structure related to the Somerset and Cayuga Facilities. The Parties agree that this provision relating to the potential rejection of the Leases shall be binding irrespective of whether the Parties reach agreement on definitive documents related to the Settlement or whether the Bankruptcy Court approves the Settlement. | |
1 The Transferred Assets and Assumed Liabilities require further financial diligence and scheduling, and the existing lists set related thereto set forth herein remain subject to such diligence and scheduling. | ||
2 Notwithstanding, the Parties will use reasonable best efforts to effectuate the transfer of SRC to Newco free and clear of existing claims and liabilities by means of an asset purchase agreement, provided, however, that indebtedness owed to the SRC Lenders will either be assumed by Newco or paid in full. | ||
3 This provision remains subject to delivery and review of relevant employment agreements, employee listings and payroll information. | ||
AES Eastern Energy, L.P. |
By: AES NY, LLC, its General Partner |
By:______________________________ |
Name: |
Title: |
Date: |
AES Somerset, LLC |
By:_______________________________ |
Name: |
Title: |
Date: |
AES Cayuga, LLC |
By:_______________________________ |
Name: |
Title: |
Date: |
AES NY3, LLC |
By:_______________________________ |
Name: |
Title: |
Date: |
[Signature page to AES Eastern Energy, L.P. Term Sheet] |
[INSERT HOLDER NAME] |
By:_______________________________ |
Name: |
Title: |
Date: |
[Signature page to AES Eastern Energy, L.P. Term Sheet] |
AEE Consolidated (Excludes Greenidge and Westover) | |||||||||||||||
($000s) | |||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||
Revenues | $246,620 | $275,316 | $336,124 | $367,819 | $425,300 | ||||||||||
Variable Costs | (200,557 | ) | (219,899 | ) | (217,641 | ) | (227,624 | ) | (257,241 | ) | |||||
Variable Margin | 46,062 | 55,417 | 118,483 | 140,194 | 168,059 | ||||||||||
Fixed Costs | (72,882 | ) | (65,062 | ) | (78,239 | ) | (73,489 | ) | (64,550 | ) | |||||
EBITDA | (26,820 | ) | (9,645 | ) | 40,244 | 66,705 | 103,509 | ||||||||
Other Below the Line | (5,813 | ) | (4,800 | ) | (4,800 | ) | (4,800 | ) | (4,800 | ) | |||||
Net Income | (32,632 | ) | (14,445 | ) | 35,444 | 61,905 | 98,709 | ||||||||
Total Capital Expenditures | (8,107 | ) | (35,208 | ) | (52,250 | ) | (32,917 | ) | (25,825 | ) | |||||
Somerset Projections | |||||||||||||||
($000s) | |||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||
Revenues | $172,343 | $192,524 | $230,783 | $248,336 | $288,304 | ||||||||||
Variable Costs | (138,770 | ) | (151,986 | ) | (146,462 | ) | (150,925 | ) | (171,676 | ) | |||||
Variable Margin | 33,573 | 40,538 | 84,320 | 97,410 | 116,627 | ||||||||||
Fixed Costs | (45,515 | ) | (38,993 | ) | (53,124 | ) | (51,201 | ) | (41,849 | ) | |||||
EBITDA | (11,943 | ) | 1,546 | 31,196 | 46,209 | 74,778 | |||||||||
Maintenance Capital Expenditures | (2,500 | ) | (1,024 | ) | (6,540 | ) | (14,017 | ) | (12,400 | ) | |||||
Environmental Capital Expenditures | (2,000 | ) | (3,250 | ) | (5,650 | ) | (4,900 | ) | (4,250 | ) | |||||
Total Capital Expenditures | (4,500 | ) | (4,274 | ) | (12,190 | ) | (18,917 | ) | (16,650 | ) | |||||
Cayuga Projections | |||||||||||||||
($000s) | |||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||
Cayuga 1 | |||||||||||||||
Revenues | $41,268 | $41,625 | $55,916 | $58,670 | $68,489 | ||||||||||
Variable Costs | (34,599 | ) | (33,771 | ) | (37,352 | ) | (37,654 | ) | (42,823 | ) | |||||
Variable Margin | 6,669 | 7,853 | 18,564 | 21,017 | 25,665 | ||||||||||
Cayuga 2 | |||||||||||||||
Revenues | 33,008 | 41,167 | 49,425 | 60,812 | 68,508 | ||||||||||
Variable Costs | (27,188 | ) | (34,142 | ) | (33,826 | ) | (39,045 | ) | (42,741 | ) | |||||
Variable Margin | 5,821 | 7,025 | 15,598 | 21,767 | 25,767 | ||||||||||
Total Variable Margin | 12,490 | 14,879 | 34,162 | 42,784 | 51,432 | ||||||||||
Fixed Costs | (17,375 | ) | (20,684 | ) | (19,932 | ) | (17,153 | ) | (17,537 | ) | |||||
EBITDA | (4,885 | ) | (5,805 | ) | 14,230 | 25,631 | 33,895 | ||||||||
Maintenance Capital Expenditures | (1,701 | ) | (2,684 | ) | (2,658 | ) | (7,000 | ) | (7,175 | ) | |||||
Environmental Capital Expenditures (1) | (1,906 | ) | (28,250 | ) | (37,402 | ) | (7,000 | ) | (2,000 | ) | |||||
Total Capital Expenditures | (3,607 | ) | (30,934 | ) | (40,060 | ) | (14,000 | ) | (9,175 | ) | |||||
Note: | |||||||||||||||
1. Environmental capital expenditures include the following: | |||||||||||||||
Cayuga 1: $10.25mm in 2013 for Wet ESP, $1.00mm in 2013 for FGD upgrades, and $0.50mm in 2014 for catalyst bed. | |||||||||||||||
Cayuga 2: $17.00mm in 2013 and $17.00mm in 2014 for SCR, $10.25mm in 2014 for Wet ESP, $1.00mm in 2014 for FGD upgrades, and $3.00mm in 2014 for induced draft. | |||||||||||||||
$7.00mm in 2015 for 316 B intake modifications. | |||||||||||||||
AEE HoldCo Projections | |||||||||||||||
($000s) | |||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||
Fixed Costs | ($9,992 | ) | ($5,385 | ) | ($5,183 | ) | ($5,135 | ) | ($5,164 | ) | |||||
Other Below the Line | (5,813 | ) | (4,800 | ) | (4,800 | ) | (4,800 | ) | (4,800 | ) | |||||
Total | (15,805 | ) | (10,185 | ) | (9,983 | ) | (9,935 | ) | (9,964 | ) |
Contacts:
Jerry Goodenough,
607-533-7913