Can Talen Energy Nuke Its Capital Structure By Unrestricting the Nuclear Business?
In a new special report, Xtract Research analyzes how Talen Energy could try to monetize its valuable nuclear asset by designating it an unrestricted subsidiary. However, because we believe that the guarantee release provisions in certain of Talen’s debt are broken, simply unrestricting the subsidiary may not operate to remove it as an obligor for all of the debt it currently supports.
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How Talen Energy Can Monetize NukeCo
Highlights from the report include:
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The analysis under all the Senior Notes may appear simple at first glance: surely it is a non-event, as there is no restricted/unrestricted regime and unrestricting NukeCo is only a covenant concern under the other debt instruments.
Investors need to be aware, though, that one potential issue with the removal of NukeCo from the system is the guarantee release provision under the Senior Notes.
Unrestricting NukeCo would leave it levered up, as it would remain contractually obligated to guarantee at least some of the Senior Notes unless they are refinanced or holders agreed to release.
As a non-guarantor NukeCo is not subject to the Secured Notes’ liens covenants nor the Revolver’s debt and liens covenants. But in order to monetize NukeCo, the Senior Notes will need to be refinanced because of the guarantee issue (or consent would need to be obtained to release the guarantee).