Analysis Group Client Prevails in Chapter 11 Proceeding

March 5, 2018

After filing for Chapter 11 bankruptcy, GenOn Energy, Inc. (GenOn) sought to undergo a restructuring that would swap most of its debt for equity. Prior to the bankruptcy proceedings, a dispute arose between GenOn and the owner-lessors of two power plants leased by GenMA, a GenOn subsidiary, regarding a change in credit support that GenOn was providing to GenMA in connection with the leases.

Milbank, Tweed, Hadley & McCloy retained Analysis Group on behalf of the owner-lessors to determine whether GenOn complied with covenants specified in the leasing arrangement for the plants. Managing Principal Michael Holland and Vice President Edi Grgeta supported our affiliate, Robert Grien, a leveraged finance expert, who examined topics related to compliance certificates, letters of credit, and fixed-charge coverage ratios from the perspective of commercial reasonableness.

Mr. Grien submitted an expert report and delivered expert testimony at deposition and at the bankruptcy court hearing. Mr. Grien opined on GenOn's alleged violations of the covenants, the harm suffered by the owner-lessors, and the commercial unreasonableness of the alternative, less-valuable credit support provided. He also provided analysis showing that GenOn's change in methodology for calculating a critical financial covenant was commercially unreasonable.

The court ruled that the owner-lessors had exposed serious wrongdoing by GenOn, and that their claims challenging the improper transfers and related misconduct would have to be “carved out” of any GenOn reorganization. This ruling led to a global settlement that provided the owner-lessors with increased credit support and deleveraging of GenMA that enhanced the value of the owner-lessors' positions.