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EME Cuts Deal To Emerge From Ch. 11 Free Of Liability

Edison Mission Energy has reached a deal to emerge from Chapter 11 free of liability, in which its parent Edison International will see a net benefit of $200 million, Edison International's chief executive said Wednesday.

The settlement between Edison International, EME and a majority of EME's senior unsecured creditors resolves all claims between EME and Edison International, and will be incorporated into EME's reorganization plan, which includes the sale of most of the utility's assets to NRG Energy Inc.

Following the sale to NRG, which has been challenged by the U.S. Securities and Exchange Commission and the Internal Revenue Service, EME is expected to have an estimated $1.2 billion worth of unused tax attributes, according to Edison International Chairman and CEO Ted Craver, and Edison International will pay creditors 50 percent of the amount of the tax attributes, plus interest or deferred payments.

Carver said EME will remain a wholly-owned subsidiary of Edison International, which plans to continue to consolidate EME for income tax purposes.

“By resolving this lingering uncertainty, [the settlement] reduces risk and allows investors to focus more clearly on the core Edison International investment thesis,” Carver said in a conference call.

The deal is subject to approval by an Illinois bankruptcy court.

California-based EME entered bankruptcy in December 2012, citing plummeting electricity prices because of increased natural gas production and the cost of complying with coal plant emission requirements imposed by state and federal regulators.

The company listed $5.13 billion in assets against $5.09 billion in liabilities as of the petition date, including $3.7 billion in principal owed to holders of senior unsecured notes.

NRG in October announced it had agreed to purchase virtually all the assets of EME for $2.6 billion, adding nearly 8,000 megawatts of power generation to the electricity giant's portfolio.

NRG plans to acquire EME's power generation portfolio, which consists of both fossil fuel and renewable generation, as well as its proprietary trading and asset management platform.

In connection with the deal, NRG will assume more than $1.5 billion in nonrecourse debt, of which $273 million is associated with assets designated as noncore assets. The company is paying a $350 million portion of the deal with approximately 12.7 million shares of NRG common stock, the rest will be paid with cash on hand.

However EME's reorganization plan has come under fire from the federal government, with the SEC saying last week that it improperly affords the company and its subsidiaries a discharge of their debts.

The SEC argued in court papers that the U.S. Bankruptcy Code does not allow a debtor that is selling substantially all of its assets or that will not engage in business after the plan is confirmed to free itself of its debts. Congress included the provision because it wanted to discourage trafficking in shells of corporate entities in Chapter 11 liquidations, the commission contends.

For its part, the IRS said EME's Chapter 11 plan contains numerous provisions that infringed the agency's $1.3 billion tax claim against the estate.

The sale to NRG has received the green light from the Federal Trade Commission, which has granted early termination status to the deal under the Hart-Scott-Rodino Antitrust Improvements Act after the commission and the U.S. Department of Justice's Antitrust Division determined not to take any enforcement action during the waiting period.

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 1:12-bk-49219, in the U.S. Bankruptcy Court for the Northern District of Illinois.