Growing Debt Load Triggers ExGen Bankruptcy
The Texas-based subsidiary of giant utility company Exelon Corporation (NYSE:EXC) has filed for Chapter 11 bankruptcy. Illinois-based Exelon’s ExGen Texas Power LLC has ended up seeking a bankruptcy court’s protection in the midst of its growing debt burden. ExGen’s bankruptcy will allow parent Exelon to retain one key asset while shedding most of the subsidiary’s debt load.
ExGen Texas Power sought the U.S. Bankruptcy Court’s protection in Delaware on Tuesday as the company looks to unload its huge pile of debt. ExGen is currently shouldering a $650.0-million debt burden.
ExGen parent Exelon had reportedly hired a law advisory firm earlier this year to consider all possible scenarios before turning to bankruptcy.
As part of the bankruptcy plan, Exelon has struck a two-part deal with ExGen creditors that will allow the company to keep one of the Texas plants in exchange for monetary commitment to ExGen creditors.
ExGen Texas Power operates five plants in total within Texas. Of these, Exelon will be keeping the Handley Generation Station, an electricity generation unit based in Fort Worth, Texas, in exchange for a $60.0-million payment to ExGen lenders.
The remaining four will go to the lenders who will forgo their debt in exchange for getting equivalent equity stakes in the Texas-based energy unit.
ExGen Bankruptcy Owed to Low Oil, Energy Prices
Exelon blames ExGen bankruptcy on “historically low power prices within Texas.” Record low fossil fuel prices and green energy alternatives are jointly contributing to the challenging environment in America’s energy industry.
Texas-based utilities have particularly been facing survival challenges as the Lone Star state sees its fossil fuel-based economy go bust amid falling oil and coal prices.
Texas’ oil-based energy sector has seen oil prices drop to record lows in the past couple years. Utilities generating electricity on coal-powered stations are now seeing increased competition from oil and gas-powered utilities.
At the same time, renewable energy has emerged as an attractive alternative to fossil fuel energy. Wind- and solar-powered electricity is substituting coal-, gas-, and oil-generated electricity. Stiff competition in the state’s energy industry has consequently led to a sharp decline in energy prices.
In fact, a number of energy companies within Texas are now either joining hands in a consolidated effort to survive death or turning to significant cost-cutting measures, including job and capital expenditure cuts, in order to control their inevitable losses.
“Exelon’s Texas merchant subsidiary files for bankruptcy,” Utility Dive, November 7, 2017.