Five former executives at NRG Energy late Friday afternoon filed an involuntary Chapter 11 petition against the Xcel Energy unit, but NRG said that despite the move, it intends to continue to conduct business as usual.

NRG also said that the filing of the involuntary petition does not put the company into bankruptcy, nor is the company subject to restrictions imposed on debtors under the U.S. Bankruptcy Code.

According to more than one media report, the involuntary bankruptcy filing was made by the following former NRG executives: ex-president and CEO David Peterson, former Treasurer Brian Bird, former executive John Noer, ex-CFO Leonard Bluhm and former senior vice-president Craig Mataczynski.

“The quintet of executives have not yet received the two years severance or pension and retirement benefits they were supposedly entitled to through their employment agreements,” wrote Williams Capital Group analyst Christopher Ellinghaus in a research report issued on Monday.

Under provisions of federal law, NRG said that it has the full authority to continue to operate its business as if the involuntary petition had not been filed unless and until a court hearing on the validity of the involuntary petition is resolved adversely to NRG. NRG has 20 calendar days to respond to the allegations contained in the involuntary petition, during which time it can choose to seek to have the petition dismissed, or converted to a voluntary bankruptcy under Chapter 11.

Should NRG seek to have the petition dismissed, the court would then set a hearing to determine the merits of the petition — a process that could take several weeks or more. NRG would have the opportunity to present evidence and the court would have to judge whether the petition had any merit. NRG is currently considering its options.

In the meantime, NRG said its employees will receive their wages, salaries and benefits as usual, and NRG will continue to purchase goods and services and pay for all purchases on normal business terms. The involuntary petition, filed in the U.S. Bankruptcy Court for the District of Minnesota, was filed against NRG Energy Inc. and not against any of its subsidiaries, which actually own and operate NRG’s power generating facilities.

NRG noted that during the last few months it has been engaged in negotiations with its bank lenders and bondholders to develop a plan for restructuring the company’s debt. NRG said that it expects those discussions to continue and stressed that none of the bank lenders or bondholders had joined the former NRG executives in signing the involuntary petition.

As for the implications of the involuntary bankruptcy filing, Ellinghaus said the petition may accelerate the talks with creditors to achieve an agreement on a voluntary bankruptcy filing that would indemnify Xcel from future liabilities associated with NRG. “At the very least, we believe the involuntary petition gives creditors more leverage to seek a better deal from Xcel,” wrote Ellinghaus. “The clock is now ticking louder at NRG.”

The analyst said that Xcel has offered to creditors the “complete surrender” of all equity in NRG, citing the company’s recent write-down of its $2.9 billion investment in NRG, and to inject $300 million into NRG in exchange for an agreement to forego claims against the parent company. “We have heard that creditors are seeking a sweetened offer from [Xcel] in exchange for consenting to an agreement,” wrote Ellinghaus. “At this point, no one can not assume that Xcel will secure such an agreement without a significantly increased offer to inject additional cash into NRG.”

From the analyst’s point of view, “while the likelihood appears somewhat remote that creditors and Xcel will not come to an agreement at a fair price, investors should remain cautious regarding the ultimate financial ramifications of NRG’s demise to parent Xcel.”

Xcel certainly left the door open to NRG’s being subjected to a bankruptcy proceeding in its most recent quarterly report filed with the Securities and Exchange Commission. The filing noted that NRG submitted a restructuring plan on Nov. 4 to its various lenders, bondholders and other creditor groups.

“Whether NRG does or does not reach a consensual arrangement with NRG’s creditors, there is a substantial likelihood that NRG will be the subject of a bankruptcy proceeding,” Xcel said in the 10Q filing. “If an agreement were reached with NRG’s creditors on a restructuring plan, it is expected that NRG would commence a Chapter 11 bankruptcy case and immediately seek approval of a prenegotiated plan of reorganization” (see Power Market Today, Nov. 19).

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