Creditors of Edison Mission Energy on Wednesday asked an Illinois bankruptcy judge for permission to sue the company's nonbankrupt parent, Edison International, based on claims that it sucked all the value out of its subsidiary until it was no longer of use.
The official committee of unsecured creditors argued in a court filing that EME itself cannot bring suit against its parent because of a conflict of interest, and that it should be allowed to do so in the interest of maximizing value to the estate.
The utility holding company, known as EIX, has used EME to enrich itself and its regulated utility business to the detriment of its now-bankrupt subsidiary, the committee contends. EIX could be liable for billions of dollars in claims for its "abusive domination and control," of EME, the creditors say.
"The prosecution of the claims by the committee will significantly benefit the debtors' estates and their creditors," they said in the court filing. The committee says its allegations are based on an ongoing investigation that could produce additional claims.
Though a large portion of the creditors' motion was redacted, they say there have been several examples of EIX’s mistreatment of EME over the years. In one instance, the parent effectuated a series of improper transfers, including $925 million in dividends to a nonbankrupt subsidiary, Mission Energy Holding Co., in 2007, the committee contends.
EME's counsel, Kirkland & Ellis LLP, are also conflicted and for that reason are not positioned to bring these claims against EIX, the creditors allege. The details of the purported conflict are redacted in the filing, though the creditors say that two non-EIX officers appointed to EME's board of directors in July 2012 have served in various management capacities for other Kirkland restructuring clients.
EME, which declared bankruptcy and was deconsolidated from EIX in December 2012, is set to transfer ownership of its division to creditors upon the approval of U.S. Bankruptcy Judge Jacqueline Cox, according to its restructuring plan.
However, the company said last month that it would like J.P. Morgan Securities LLC to simultaneously explore the possibility of selling off the company's assets. By pursuing both options, EME said, it can ultimately choose the most profitable one for shareholders. Judge Cox signed off on the request a couple of weeks ago.
Over time, the once-profitable 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 Chief Financial Officer Maria Rigatti said in court filings.
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.
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 construction or in operation in Illinois, Iowa, Minnesota, Nebraska, New Mexico, Oklahoma, Pennsylvania, Texas, Utah and Wyoming.
The creditors are represented by Ira S. Dizengoff, Stephen M. Baldini, Arik Preis, Robert J. Boller, James Savin and Kevin M. Eide of Akin Gump Strauss Hauer & Feld LLP and David M. Neff and Brian Audette of Perkins Coie LLP.
EME is represented by James H.M. Sprayregen, David R. Seligman, Sarah Hiltz Seewer and Joshua A. 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.
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