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Frontera Enters into RSA, Seeks to Reduce Debt by Approximately $800MM

February 04, 2021, 07:21 AM
Filed Under: Bankruptcy

Frontera Holdings has entered into a Restructuring Support Agreement (RSA) with approximately 97 percent of its term loan lenders, 100 percent of its noteholders, and its 100 percent equity holder, through which most of the Company's debt will be converted into equity and the current term loan and revolving credit facility lenders will become the new owners of the Company. To advance this process, the Company has filed voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code before the U.S. Bankruptcy Court for the Southern District of Texas.

Throughout this process and beyond, the Company fully expects that employees and vendors will continue to be paid and the Frontera Energy Center will continue to generate electricity and serve its customers. The Company's subsidiary entities in Mexico are not included in the chapter 11 filing and also are continuing to operate in the ordinary course of business.

"These actions represent an important milestone to reducing debt and strengthening the Company for the benefit of our stakeholders," said Frontera CEO Lee Davis. "Frontera intends to use the court-supervised process to create a sustainable capital structure and position the Company to achieve long-term success."

The Company has entered into an RSA with holders of approximately 97 percent of its term loan debt and 100 percent of its secured notes, along with the 100 percent equity holder Lonestar Generation LLC, on the terms of a comprehensive financial restructuring. Currently, Frontera has $773 million in debt under a secured term loan and revolving credit facility, as well as $171 million in secured notes. Under this agreement, lenders agree to convert a substantial portion of the current term loan and revolving credit facility debt into equity. Assuming approval by the Bankruptcy Court, these lenders will become the new owners of the Frontera Energy Center.

Frontera has secured $70 million in debtor-in-possession (DIP) financing to ensure liquidity throughout the chapter 11 process. The Company's liquidity position will allow the plant to operate the business in the ordinary course and fund chapter 11 administrative costs. The DIP financing will be a part of $145 million in exit financing provided by lenders upon emergence from chapter 11.

To ensure its ability to continue operating in the ordinary course of business, Frontera is filing customary "first day" motions with the court.

PJT Partners LP is serving as investment banker for the Company; Kirkland & Ellis and Jackson Walker L.L.P. are serving as legal counsel; and Alvarez & Marsal is serving as financial advisor. Term loan lender advisors include Houlihan Lokey Inc. and Akin Gump Strauss Hauer & Feld LLP. Noteholder advisors include Silver Foundry, LP and Morgan, Lewis & Bockius LLP.

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