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Edison International Unit Fizzles Into Ch. 11

An Edison International unit on Monday filed for bankruptcy protection in Illinois federal court after reaching an agreement on reorganization with its parent and a majority of the holders of its $3.7 billion in debt.

The Santa Ana, Calif.-based power company said under the plan, ownership of its Edison Mission Energy division would be transferred to creditors upon the bankruptcy court's approval of its Chapter 11 reorganization plan.

As of Monday, EME was deconsolidated from Edison International, which expects to report the results of EME under discontinued operations for current and prior filing periods, Edison International said in a statement.

EME listed $5.13 billion in assets and $5.09 billion in liabilities, according to court documents.

The bankrupt outfit has experienced "a sea change in the power market's competitive landscape, dramatically higher environmental capital expenditure requirements and debt payment maturities that have severely limited the debtors' ability to compete effectively," EME's chief financial officer Maria Rigatti said in court filings.

Specifically, EME's revenue from power sales has suffered from a "well-documented and rapid expansion" in natural gas supplies that has caused wholesale electricity prices to drop, Rigatti said.

Additionally, EME has spent and continued to spend hundreds of millions of dollars complying with state and U.S. mandated environmental improvements on coal facilities, which comes as the company has struggled with interest payment obligations and maturities under its billions in unsecured bond and project debt, according to its CFO.

Among the company's largest creditors is indenture trustee Wells Fargo Bank NA, which holds about $3.9 billion in unsecured claims, court filings showed.

EME owns, leases, operates and sells energy from electric power facilities, according to the company website. The company owns or has interest in 45 power generation facilities across the U.S. and packs a sizable wind energy portfolio.

According to Edison International, EME's power generation assets include fossil-fuel power plants in California, Illinois, Pennsylvania and West Virginia as well as in Turkey; a biomass operation in New York; and wind energy projects either under operation or construction in Illinois, Iowa, Minnesota, Nebraska, New Mexico, Oklahoma, Pennsylvania, Texas, Utah and Wyoming.

As of last year, EME's subsidiaries and affiliates have two additional wind projects and a natural gas-fired peaker plant under construction, among several other assets, Edison International said.

EME also engages in hedging and trading by way of its Boston-based subsidiary Edison Mission Marketing and Trading.

In August, Edison International warned that EME might be sliding into bankruptcy, saying that low power prices and federally mandated environmental upgrades were weighing heavily on the division's liquidity.

The disclosure came as Edison International's CEO, Ted Craver, announced disappointing second-quarter earnings in a conference call with investors. EME lost $110 million in that second quarter, compared to $30 million in the same period last year, according to earnings statements.

EME's collapse may not have come as a surprise to industry experts and analysts, who were already skeptical of the company's heavy leverage and increasingly untenable environmental compliance costs.

In May 2011, Fitch Ratings singled out Edison International in a report, downgrading its credit rating and issuing a negative outlook on EME, saying that lower wholesale power prices and environmental compliance costs could lead to insolvency.

EME is represented by David R. Seligman and Joshua Sussberg of Kirkland & Ellis LLP.

The case is In re: Edison Mission Energy et al., case number 12-49219, in the U.S. Bankruptcy Court for the Northern District of Illinois.