UPDATE 1: Judge Isgur Approves Revised Exculpation Language, Enters Talen Energy Supply Confirmation Order

UPDATE 1: 4:45 p.m. ET 12/15/2022: At a short conference this afternoon following the confirmation hearing in the Talen Energy Supply cases earlier today, Judge Marvin Isgur signed off on revised language in the proposed confirmation order resolving the U.S. Trustee’s objection to the plan’s exculpation provision. The court entered the confirmation order as revised after the hearing.

The company issued a press release announcing confirmation after this afternoon’s hearing. The press release states that the Talen debtors anticipate emerging from chapter 11 “following receipt of regulatory approvals, which are expected in the first half of 2023” (emphasis added).

The new language incorporated into the now-approved confirmation order memorializes Judge Isgur’s suggested compromise regarding the exculpation provision at today’s confirmation hearing (discussed below). Consistent with the arrangement discussed on the record, the confirmation order now removes directors and officers (other than independent directors) from the plan’s definition of exculpated parties, and separately shields “global settlement parties” (including directors and officers) from liability for any act or omission related to the solicitation of plan votes or the offer or sale of securities under a plan, in accordance with section 1125(e) of the Bankruptcy Code. Also as discussed at the hearing, the order contains a “gatekeeper provision” that would require the bankruptcy court’s approval before any party could bring an action against any global settlement party that relates to the protected conduct.

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Original Story 2:43 p.m. UTC on Dec. 15, 2022

Talen Plan Confirmed Subject to Exculpation Modifications After Judge Isgur Brokers Resolution of UST Objection

Relevant Documents:
Hearing Agenda
TEC Joint Administration Order

Judge Marvin Isgur said at the conclusion of today’s confirmation hearing that he will confirm the Talen Energy Supply debtors’ chapter 11 plan (as slightly modified), subject to forthcoming language suggested by the judge to resolve the U.S. Trustee’s limited objection to the scope of the exculpation provision. The court set a follow-up hearing for today at 4 p.m. ET to address the language reflecting the compromise, as discussed below.

The court also approved the uncontested first day relief sought by Talen’s parent company, Talen Energy Corp., or TEC, which filed a chapter 11 petition on Monday, Dec. 12, in order to become the new corporate parent for the reorganized debtors under the plan.

With the UST’s objection resolved, confirmation was fully consensual apart from an objection from a pro se bondholder raised during the hearing, which the court overruled. The debtors said they resolved all remaining formal and informal objections.

As summarized by debtors’ counsel today, the plan reflects a series of key settlements during the course of the cases with equity sponsor Riverstone and parent company Talen Energy Corp., or TEC, certain lenders and the official committee of unsecured creditors. Although the plan was rejected by Class 5(a) general unsecured claims at all but three debtors, the court was satisfied that the debtors had met Bankruptcy Code section 1129(b)’s cramdown requirements.

Debtors’ counsel Alexander Welch of Weil Gotshal said the debtors expect to emerge from chapter 11 “some time” in 2023 after regulatory approvals are obtained.

In the UST’s limited objection, it argued that the plan’s exculpation provision violated the Fifth Circuit’s Aug. 19 Highland Capital decision by proposing to exculpate the debtors’ directors and officers. Judge Isgur offered a compromise under which directors and officers (other than independent directors) would be removed from the proposed exculpation provision, while the confirmation order would separately state that the directors and officers are protected by Bankruptcy Code section 1125(e), which limits liability for persons who solicit plan votes or participate in the offer or sale of securities under a plan. The confirmation order would further add a “gatekeeper provision” for the directors and officers, which would require the bankruptcy court’s approval before any party could bring an action against the directors and officers related to the section 1125(e) protection.

Although the debtors and UST each initially expressed reluctance to accept the court’s proposal, they took a brief recess and ultimately agreed to the compromise after Judge Isgur warned that if he was forced to rule, he would either approve or reject the debtors’ proposed exculpation in full, meaning he would not merely direct that certain parties be carved out of the exculpation provision. Cautioning that a denial of the exculpation provision would amount to denial of plan confirmation, the judge remarked that it “seems like we’re gambling an awful lot for something not terribly consequential.”

After the parties accepted his proposal, Judge Isgur told debtors’ counsel, “I promise you that was the right decision.”

Judge Isgur also sua sponte raised concerns regarding the absolute priority rule with respect to Class 7 (prepetition Cumulus intercompany claims) and Class 8 (prepetition intercompany claims), both of which would retain their claims notwithstanding the lack of full recovery for general unsecured claims in Class 5(a), which voted to reject the plan at several debtors. The debtors addressed the judge’s concerns by agreeing to eliminate any recovery for Class 7 intercompany claims and stipulating that there are no outstanding Cumulus intercompany claims in Class 8, and deeming such class vacant.

At the conclusion of the hearing, Judge Isgur commended the parties for achieving confirmation “before Christmas,” after entering bankruptcy in May “without a deal in the beginning,” calling it a “pretty remarkable” achievement in a “really hard case.”