Item 1.01 Entry into a Material Definitive Agreement
On February 18, 2014, Edison Mission Energy ("EME") entered into a Settlement
Agreement with certain of its creditors holding a majority of its outstanding
senior unsecured notes and Edison International (the "Settlement Agreement").
As a result of the Settlement Agreement, EME will seek to amend its Plan of
Reorganization (the "Plan") to incorporate the Settlement Agreement's terms,
including extinguishing all existing claims between EME and Edison
International. Effectiveness of the Settlement Agreement will be subject to
approval by the United States Bankruptcy Court for the Northern District of
Illinois, Eastern Division (the "Bankruptcy Court"). The schedule for
confirmation of the Plan is expected to be continued to accommodate notice of
the amendment to EME creditors.
Under the Settlement Agreement, EME will emerge from bankruptcy free of
liabilities but will remain an indirect wholly-owned subsidiary of Edison
International, which will continue to consolidate EME for income tax purposes.
On the effective date of the Plan ("Effective Date"), all assets and liabilities
of EME that are not otherwise discharged in the bankruptcy or transferred to a
subsidiary of NRG Energy, Inc., will be transferred to a newly formed trust or
other entity established to make distributions pursuant to the Plan for the
benefit of EME's existing creditors (the "Reorganization Trust"), with the
exception of (a) EME's income tax attributes, which will be retained by the
Edison International consolidated income tax group, (b) certain tax and pension
related liabilities which are being assumed by Edison International and for
substantially all of which Edison International currently has joint and several
responsibility, and (c) EME's indirect interest in Capistrano Wind Partners and
a small hydro-electric project, which is currently a lease investment of Edison
Capital that is expected to be transferred to EME prior to closing.
Edison International has agreed to pay to the Reorganization Trust amounts equal
to 50% of EME's Federal and California income tax benefits generated as of the
Effective Date, including as a result of the Plan, which were not previously
paid to EME under a tax allocation agreement between Edison International and
EME that expired on December 31, 2013 ("EME Tax Attributes"). These benefits are
expected to remain available for use by the Edison International consolidated
income tax group. On the Effective Date, $225 million of the amount due the
Reorganization Trust will be paid in cash, with one half of the balance payable
on each of September 30, 2015 and September 30, 2016, together with interest at
5% per annum from the Effective Date.
The Settlement Agreement sets forth a current estimate of EME Tax Attributes of
approximately $1.19 billion. Such estimate will be updated through a procedure
set forth in the Settlement Agreement, which is expected to take up to
approximately six months from the Effective Date. When such estimate is
finalized, the two installment payments remaining to be made by Edison
International will be fixed, and Edison International will deliver to the
Reorganization Trust two zero coupon promissory notes evidencing its obligation
to make the two installment payments. Were the final estimate of EME Tax
Attributes to remain the same as the current estimate, the amount of each
promissory note would be $185 million plus applicable interest. Assuming
continuation of existing law and tax rates, Edison International also
anticipates realization of the tax benefits over a period similar to the period
for which it pays for them, and pending realization, Edison International will
finance the settlement from existing credit lines.
Under the Settlement Agreement, Edison International will assume certain EME
obligations, which Edison International estimates to be approximately $350
million. These obligations are comprised of federal and certain state income
tax, qualified and executive pension, and related liabilities. Edison
International is currently jointly and severally obligated with EME for such tax
and qualified pension liabilities.
EME and the Reorganization Trust
will release Edison International and its
subsidiaries, officers, directors, and representatives from all claims, except
for those deriving from commercial arrangements between Southern California
Edison Company and certain of EME's subsidiaries, and except for obligations
under the Settlement Agreement. Edison International and its subsidiaries that
directly and indirectly own EME will provide a similar release to EME and the
. Under the Plan, Edison International and its subsidiaries
will also be beneficiaries of orders of the Bankruptcy Court
releasing them from
claims of third parties in EME's bankruptcy proceeding, and the Reorganization
is obligated to set aside $50 million
in escrow to secure its obligations
to Edison International under the Settlement Agreement, including its obligation
to protect against liabilities, if any, not discharged in the bankruptcy for
which the Reorganization Trust
remains responsible. Such escrowed amount will
decline over time to zero on the later of September 30, 2016
, and the date on
which certain third-party claims pending as of September 30, 2016
, are resolved.
The foregoing summary of the Settlement Agreement, including the exhibits
attached thereto, is qualified in its entirety by reference to the complete text
of the Settlement Agreement, including the exhibits attached thereto, which is
filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated by
Item 8.01 Other Events.
As previously disclosed, Edison Mission Energy
and nineteen of its wholly owned
subsidiaries, including Midwest Generation, LLC
(collectively, the "Debtors")
are debtors and debtors in possession pursuant to Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the Northern District of Illinois
, Eastern Division (the "Bankruptcy
"). On February 19, 2014
, the Debtors filed with the Bankruptcy Court
an exhibit to the Settlement Agreement, an amended version of their joint plan
of reorganization (the "Plan") pursuant to the Bankruptcy Code. A copy of the
Plan is attached hereto as Exhibit 99.1. A copy of the Plan is also publicly
available and may be accessed free of charge at the website established for the
Debtors' chapter 11 cases by the Debtors' notice and claims agent at
. The information set forth on the
foregoing website shall not be deemed to be part of or incorporated by reference
into this Current Report on Form 8-K.
The Debtors recommend that their stakeholders refer to the limitations and
qualifications included in the Plan with respect to the information contained
therein. Information contained in the Plan is subject to change, whether as a
result of amendments to the Plan, actions of third parties, or otherwise.
The Plan will become effective only if it receives the requisite stakeholder
approval, if confirmed by the Bankruptcy Court
, and if certain terms and
conditions are satisfied or waived. There can be no assurance that the Debtors'
stakeholders will vote to accept the Plan, that the Bankruptcy Court
confirm the Plan, or that the plan will be consummated.
Item 9.01 Financial Statements and Exhibits.
10.1 Settlement Agreement, dated February 18, 2014
, by and among Edison
, Edison International and the Consenting Noteholders
99.1 Joint Plan of Reorganization, filed February 18, 2014.
Limitation on Incorporation by Reference
The Plan shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference in
any filing under the Securities Act of 1933, as amended. Registration statements
or other documents filed with the U.S. Securities and Exchange Commission
("SEC") shall not incorporate the Schedules and Statements or any other
information set forth in this Current Report on Form 8-K by reference, except as
otherwise expressly stated in such filing. This Current Report on Form 8-K will
not be deemed an admission as to the materiality of any information in the
report that is required to be disclosed solely by Regulation FD.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K and the exhibits hereto contain forward-looking
statements based on information available as of the date the report was
prepared. These forward-looking statements are subject to a significant amount
of uncertainty, in particular regarding the chapter 11 cases, the Debtors'
ability to consummate one or more plans of reorganization. Factors both within
and outside the control of EME will affect the accuracy of this forward-looking
information. Furthermore, the information is subject to assumptions,
qualifications and performance criteria not otherwise described in the