8-KMaterial AgreementsFinancial EventsOther Events+1

FIRSTENERGY CORP 8-K Report, Material Agreement (Dec 6, 2016)

Filed December 6, 2016For Securities:FE

Summary

On December 6, 2016, FirstEnergy Corp. (FE) and its subsidiaries significantly restructured their credit facilities, entering into new syndicated revolving credit agreements and a term loan facility totaling $5.2 billion. These new facilities replace previously existing credit lines that were set to expire in March 2019. The company also entered into a secured revolving credit and surety credit support agreement specifically for FirstEnergy Solutions Corp. (FES). The primary objective of this refinancing was to enhance FE's liquidity and extend its debt maturity profile. Notably, the new credit agreements include provisions designed to insulate FirstEnergy Corp. from potential adverse events at its competitive energy services subsidiary, FES, including adjustments to debt-to-capitalization covenants to accommodate potential asset impairments at FES. This restructuring occurs amidst an ongoing strategic review of FE's competitive operations, with significant uncertainty surrounding the future of its generation assets at FES and AE Supply.

Key Highlights

  • 1FirstEnergy Corp. and subsidiaries entered into new credit facilities totaling $5.2 billion, comprising $4 billion for FE and its regulated distribution subsidiaries, $1 billion for transmission subsidiaries, and a $1.2 billion term loan for FE.
  • 2These new facilities replace existing credit agreements that were originally set to expire in March 2019, extending the maturity profile for the company.
  • 3A separate $700 million secured revolving credit and surety credit support facility was established for FirstEnergy Solutions Corp. (FES), with FE acting as the lender.
  • 4The new credit agreements include covenants that aim to insulate FE from certain financial distress at its subsidiary FES, such as adjustments to the debt-to-capitalization ratio to account for potential asset impairments at FES.
  • 5The company is undergoing a strategic review of its competitive energy services segment, with exploration of alternatives for remaining generation assets at FES and AE Supply, including potential sales and legislative efforts.
  • 6AE Supply has entered into a non-binding letter of intent to sell certain gas and hydroelectric facilities for an anticipated purchase price of $885 million.
  • 7S&P Global Ratings lowered FES's corporate credit rating to 'CCC+' with a negative outlook on December 2, 2016, reflecting ongoing concerns regarding its competitive operations.

Frequently Asked Questions

FirstEnergy Corp. and its subsidiaries entered into new credit facilities totaling $5.2 billion. This includes a $4 billion syndicated revolving credit agreement for FE and its regulated distribution subsidiaries, a $1 billion syndicated revolving credit agreement for its transmission subsidiaries, and a $1.2 billion syndicated term loan for FE.

The new facilities replace existing credit agreements that were scheduled to expire in March 2019. The new facilities generally have a five-year term, extending the company's debt maturity profile. Importantly, the new agreements include provisions designed to better insulate FirstEnergy Corp. from the financial risks associated with its subsidiary, FirstEnergy Solutions Corp. (FES).

A new $700 million secured revolving credit and surety credit support agreement was established for FES, with FirstEnergy Corp. acting as the lender. This facility provides FES with credit support, including $500 million in revolving loans and $200 million in surety credit support, with borrowings and support available until December 31, 2018. This comes amidst FES's ongoing strategic review and rating downgrades.

The company is actively exploring strategic alternatives for its competitive energy services segment, including the potential sale of generation assets. This strategic review introduces significant uncertainty regarding the future performance and financial stability of FES and AE Supply. The company has stated that adverse outcomes, such as bankruptcy filings at FES, could materially impact FirstEnergy Corp. and its consolidated subsidiaries. Investors should monitor developments closely, particularly the outcome of the sale of AE Supply's assets and any potential legislative efforts to restructure generation operations.