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Bankruptcy court OKs FirstEnergy Solutions settlement, setting stage for reorganization

September 26, 2018

Bankruptcy court OKs FirstEnergy Solutions settlement, setting stage for reorganization

AKRON, Ohio -- U.S. Bankruptcy Judge Alan Koschik said late Tuesday that he will approve a complicated settlement of financial issues between FirstEnergy and its bankrupt subsidiary FirsrtEnergy Solutions.

FirstEnergy will make a settlement payment of $225 million to FES and issue $628 million in notes for the subsidiary that will mature on Dec. 31, 2022. These are funds that would go to the FES “estate,” meaning money for its many creditors.

FirstEnergy also agreed to continue providing back office “shared services” for its subsidiary and would credit and $112.5 million for these services through the end of the year.

Koschik’s ruling came after five hours of testimony.

“Given the presentations today, originally when I saw this motion, I wondered whether there were going to be problems. But given everything I have heard, I have been convinced this is a fair and equitable settlement. I will approve it,” he said.

Lawyers representing FirstEnergy Solutions testified that the FES estate would receive at least $1.1 billion “in consideration,” not including the value of ongoing shared services support.

Committees representing the debtors, including bond holders who are owed $2.1 billion and others owed hundreds of millions of dollars did not object to the settlement.

The settlement eliminates the threat of litigation between FES and its parent, as well as litigation brought by creditors.

The purely financial deal did not include objections from consumer groups including the Ohio Consumers’ Counsel and the Justice Department representing the U.S. Environmental Protection Agency.

FES added a paragraph to the settlement, at the end of testimony, noting that nothing in the language would prevent the OCC from objecting to any effort by FirstEnergy to pass costs onto consumers.

The EPA and a group of consumer groups represented by the Environmental Law and Policy Center are concerned about environmental cleanup at the company’s coal and nuclear plants once they are shut down.

Koschik said their objections were premature.

“Those could be real risks,” Koschik said of future environmental risks. “But  I think its clear that whatever those risks are, they are a lot less than the benefits afforded by this settlement.

The fact that this agreement can be obtained without litigation and the costs associated with it makes it, in that sense, a no-brainier.”

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