An AES Corp. subsidiary that owns more than 1,000 MW of coal-fired capacity at six facilities in New York last week filed for Chapter 11 bankruptcy protection, citing falling power prices and heightened costs from compliance with environmental regulations.
AES Eastern Energy and 13 affiliated entities—all wholly owned by AES Corp.—filed for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. The company’s dire financial situation was brought about by a number of operational factors, it said, including “reduced power prices brought on by low natural gas prices, increased costs for coal, and significant costs for air pollution controls. As a result of these operational factors, the company did not have sufficient cash flow to service its debt.”
AES Eastern Energy bought six New York coal plants from New York State Electric & Gas Corp. in 1999 for $950 million and financed the purchase of the Cayuga and Somerset plants located in Barker and Lansing, N.Y., through a $550 million sale-leaseback transaction. Two of the other four plants were closed in 2002, and two others were shut down in March 2011. The Cayuga and Somerset plants were the only operating facilities.
The company said it was forced to declare bankruptcy to “facilitate” the sale or transfer of the two operating plants, the 306-MW Cayuga and 675-MW Somerset plants. The plants are expected to continue operations during the bankruptcy. AES Eastern Energy also said it has reached an agreement for the sale of the two 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.”
As part of its Chapter 11 process, the company is expected to divest or retire the four coal-fired power plants in New York, “all of which are in protective lay-up or cold standby status and are not currently operating.”
Fitch Ratings today downgraded a total of $433.1 million outstanding secured pass-through trust certificates at AES Eastern Energy to ‘D’ from ‘C.’ “The downgrade is due to AES’s Chapter 11 bankruptcy filing that occurred on December 30, 2011,” the ratings agency said.
Parent company AES Corp. said that the bankruptcy filing was not expected to impact AES’ numbers on diluted earnings per share. “The Company is not updating its guidance at this time other than to note the effect of the bankruptcy filing described above. The Company’s review of its 2011 fourth quarter and full year financial results is not complete and the Company intends to report its results in February of 2012,” it said.
AES subsidiary AES Thames last February filed for bankruptcy, closing its 181-MW Connecticut plant, citing high coal prices and costs.
Sources: POWERnews, AES, Fitch Ratings