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FirstEnergy Confirms FES Bankruptcy

Mar. 01, 2018 10:48 AM ETFirstEnergy Corp. (FE)18 Comments
Samuel Riehn profile picture
Samuel Riehn


  • Time is running out for the company's unregulated subsidiary, FirstEnergy Solutions.
  • FirstEnergy reported a fourth-quarter, pretax charge of $2.4 billion from plant write-downs and other exit costs.
  • FirstEnergy's planned $10 billion investment into its local delivery systems and long-distance high-voltage transmission business is expected to result in 6 to 8 percent increase in earnings, annually.

It is the month of distressed utilities it seems. FirstEnergy's (NYSE: FE) top executive Charles "Chuck" Jones confirmed what I said in January - time is running out for the company's unregulated subsidiary, FirstEnergy Solutions (FES).

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Jones told analysts during a public teleconference that FirstEnergy Solutions has been operating independently since early last year and that FES will no longer have access to FirstEnergy's bank by the end of March.

However, before March 31, Jones said he expects FirstEnergy Solutions to borrow up to $100 million from FE's internal bank. Which sounds crazy, because those borrowed funds would make FirstEnergy a creditor in the subsidiary's Chapter 11. But perhaps this is a move to have first bid rights at FES's many assets.

"While I cannot speak for the unregulated business, I would be shocked if they go beyond the end of March without some type of filing," Jones said.

FirstEnergy Solutions owes a bond holder payment of about $100 million, which is due in early April and this payment will likely be what pushes FES to file bankruptcy. Moody's lowered the subsidiary's rating from below investment grade to likely in default.

Sooner the better in my opinion. FirstEnergy, which received a $2.5 billion equity injection from activist investor Elliott Management Corp. and others in January, just keeps losing money on FES. They reported a fourth-quarter, pretax charge of $2.4 billion from plant write-downs and other exit costs. In the year-earlier quarter they reported $9.22 billion in charges related to the planned exit from the unregulated business.

Jones said decisions about how to proceed with the coal and nuclear plants First Energy Solutions owns will be up the FES leadership. "It's FES' decision whether and how to bid in that upcoming [capacity] auction for the FES assets," he said. "It would be Allegheny Energy Supply's

This article was written by

Samuel Riehn profile picture
Long/Short Equity, Contrarian, Deep Value, Special Situations

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