Financing Activities

Credit Arrangements and Short-term Debt

Talen Energy maintains credit arrangements to enhance liquidity and provide credit support. For reporting purposes, on a consolidated basis, the credit arrangements of Talen Energy Supply and its subsidiaries also apply to Talen Energy Corporation.

Revolving Credit Facilities

The following secured revolving credit facilities were in place at December 31, 2015:



	Expiration Date	Capacity		Borrowed (c)		Letters of Credit Issued		Unused Capacity
Talen Energy Supply RCF (a)	June 2020	$	1,850	$	500	$	163	$	1,187
New MACH Gen RCF (b)	July 2021	160		108		31		21
Total Credit Facilities		$	2,010	$	608	$	194	$	1,208

(a)

The facility is syndicated and provides capacity available for short-term borrowings and up to $925 million of letters of credit. The facility requires Talen Energy Supply to maintain a senior secured net debt to adjusted EBITDA ratio (as defined in the agreement) of less than or equal to 4.50 to 1.00 as of the last day of any fiscal quarter. Talen Energy Supply pays customary fees on the facility and borrowings bear interest at its option at either a defined base rate or LIBOR-based rates, in each case plus an applicable margin. The weighted average interest rate on outstanding borrowings at December 31, 2015 was 2.67%.


(b)	The facility provides capacity available for short-term borrowings and up to $120 million of letters of credit. New MACH Gen pays customary fees on the facility and borrowings bear interest at 12-month LIBOR, plus an applicable margin. The weighted average interest rate on outstanding borrowings at December 31, 2015 was 5.04%.


(c)	The amounts borrowed are recorded as "Short-term debt" on the Balance Sheet.

The Talen Energy Supply RCF was entered into on June 1, 2015 in connection with the completion of the spinoff transaction and replaced Talen Energy Supply's previously existing unsecured syndicated credit facility. Any outstanding principal amounts under the old facility were repaid prior to the termination of the old facility and outstanding letters of credit were transferred to the Talen Energy Supply RCF. The facility is secured by liens on a majority of Talen Energy Supply's assets and is guaranteed by certain Talen Energy Supply subsidiaries, which guarantees are in turn secured by liens on assets of such subsidiaries with an aggregate carrying value of $7 billion at December 31, 2015. The facility provides the option to raise incremental credit facilities, refinance the loans with debt incurred outside the facility and extend the maturity date of the revolving credit commitments and loans and, if applicable, term loans, subject to certain limitations.

The Talen Energy Supply letter of credit facility and uncommitted credit facilities that existed at December 31, 2014 either expired or matured during the first quarter of 2015. Any previously issued letters of credit under these facilities were either terminated or reissued under the then-outstanding unsecured syndicated credit facility and upon closing of the spinoff were reissued under the Talen Energy Supply RCF described above. During the year ended December 31, 2015, Talen Energy wrote-off $12 million of unamortized fees to "Interest expense" on the Statements of Income as a result of the termination of the prior unsecured syndicated credit facility.

The New MACH Gen RCF is a component of the $642 million First Lien Credit and Guaranty Agreement, which was outstanding when Talen Energy acquired MACH Gen in November 2015. The First Lien Credit and Guaranty Agreement also contains a Term Loan B as described in "Long-term Debt" below. Obligations under the First Lien Credit and Guaranty Agreement are guaranteed by each of New MACH Gen's subsidiaries and are secured by a first priority security interest, subject to possible shared first lien status with certain permitted hedge and power sale agreements, in all of the assets of New MACH Gen and each guarantor, including the equity interests in New MACH Gen and each guarantor, which assets collectively have an aggregate carrying value of approximately $1 billion at December 31, 2015. Talen Energy is not a guarantor or obligor of borrowings under the First Lien Credit and Guaranty Agreement.

Other Facilities

Talen Energy Supply maintains a $500 million agreement expiring June 2017 that provides Talen Energy Supply the ability to request up to $500 million of committed unsecured letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions. At December 31, 2015, Talen Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.

In December 2015, Talen Energy Supply and Talen Energy Marketing entered into the Amended Secured Energy Marketing and Trading Facility Agreement (Amended STF Agreement) to amend the $800 million Secured Energy Marketing and Trading Facility Common Agreement, dated as of November 1, 2010. The Amended STF Agreement increased the facility capacity to $1.3 billion. The facility allows Talen Energy Supply to receive credit to satisfy collateral posting obligations related to Talen Energy's energy marketing and trading activities with counterparties participating in the facility. Prior to the Talen Energy spinoff transactions, Montour, LLC and Brunner Island, LLC had guaranteed certain of Talen Energy Marketing's obligations and had granted mortgage liens on their respective generating facilities to secure such guarantees. Brunner Island and Montour have since been released as parties. Obligations under the Amended STF Agreement are secured by the same collateral that secures the Talen Energy Supply RCF described above. The facility is for a five-year term that is subject to an automatic one-year extension each year until termination under the provisions of the Amended STF Agreement. The initial term expires in December 2020. There were $54 million of secured obligations outstanding under this facility at December 31, 2015.

Long-term Debt

The following long-term debt was outstanding at December 31:



	2015						2014
	Weighted-Average Rate		Maturities
Senior Unsecured Notes	5.41	%	2016-2038	$	3,713		$	2,193
Senior Secured Notes	8.86	%	2025	41			45
Term Loan B	6.21	%	2022	474			—
Total Long-term Debt Before Adjustments				4,228			2,238

Fair market value adjustments				(23		)	(19		)
Unamortized premium and (discount), net				(2		)	(1		)
Total Long-term Debt				4,203			2,218
Less current portion of Long-term Debt, including fair market value adjustment				399			535
Total Long-term Debt, noncurrent				$	3,804		$	1,683

The aggregate maturities of long-term debt are as follows:



2016		2017		2018		2019		2020		Thereafter		Total
$	396	$	5	$	424	$	1,244	$	179	$	1,980	$	4,228

Long-term Debt Activity

In May 2015, Talen Energy Supply issued $600 million of 6.50% Senior Unsecured Notes due 2025. Talen Energy Supply received proceeds of $591 million, net of underwriting fees, which were used for repayment of short-term debt. The notes may be redeemed at Talen Energy Supply's option, in whole at any time or in part from time to time, prior to June 1, 2020 at a price equal to 100% of their principal amount plus a make-whole premium and on or after June 1, 2020 at specified redemption prices. In addition, on or prior to June 1, 2018, up to 35% of the notes may be redeemed by Talen Energy Supply with proceeds from certain equity offerings at a price equal to 106.5% of the principal amount.

In June 2015, Talen Energy Supply assumed $1.25 billion of RJS Power Holdings LLC's 5.125% Senior Notes due 2019 as a result of the merger of RJS Power Holdings LLC into Talen Energy Supply, by which Talen Energy Supply became the obligor of these notes. In connection with this event and pursuant to the terms of the indenture governing the notes, the coupon on the notes was reduced to 4.625% in July 2015.

In September 2015, Talen Energy Supply completed a remarketing of $231 million of Exempt Facilities Revenue Refunding Bonds, Series 2009A due 2038, Series 2009B due 2038, and Series 2009C due 2037 that were issued by PEDFA on behalf of Talen Energy Supply in 2009. All series bore interest at a fixed rate of 3.0% prior to the remarketing. The Series 2009A Bonds, with a principal amount of $100 million, were remarketed at a fixed coupon of 6.40% to maturity. The Series 2009B Bonds and Series 2009C Bonds, with an aggregate principal amount of $131 million, were remarketed at a fixed rate of 5.00% for five years, at which time they will be subject to mandatory repurchase and optional remarketing. This transaction is excluded from the Statement of Cash Flows as a non-cash transaction.

In October 2015, Talen Energy Supply's $300 million of 5.70% REset Put Securities due 2035 (REPS) were subject to mandatory tender to the remarketing dealer. However, the remarketing dealer and Talen Energy Supply mutually agreed to terminate the remarketing dealer's right to remarket the REPS and, in accordance with the terms of the REPS, Talen Energy Supply repurchased the REPS at par. The total aggregate consideration paid to repurchase the REPS was $434 million, which included $300 million of principal and $134 million of remarketing option value paid to the remarketing dealer. The termination payment to the remarketing dealer was recorded to "Other Income (Expense) - net" on the 2015 Statement of Income and is reflected in "Cash from operating activities" on the 2015 Statement of Cash Flows.

Following the MACH Gen acquisition in November 2015, $475 million of New MACH Gen Term Loan B debt secured under the First Lien Credit and Guaranty Agreement, which is described above, remained outstanding. The Term Loan B provides customary annual amortization paid quarterly and may also be repaid, in whole or in part, beginning in the third quarter of 2016 without any make-whole premium. See "Credit Arrangements and Short-term Debt - Revolving Credit Facilities" above for information regarding guarantees of and security interests with respect to the First Lien Credit and Guaranty Agreement.

In December 2015, Talen Energy Supply announced an "exchange offer" for its 6.5% Senior Unsecured Notes due 2025 that were issued in May 2015. Pursuant to the terms of the notes, Talen Energy Supply offered to exchange all of the outstanding notes for a like principal amount of its 6.5% Senior Notes due 2025 that, have been registered under the Securities Exchange Act of 1933, as amended. In January 2016, the exchange offer was completed with all of the notes exchanged.

In connection with the sale of Talen Ironwood Holdings, LLC, in January 2016, a Talen Ironwood Holdings, LLC subsidiary completed the redemption of $41 million of its 8.857% Senior Secured Notes due 2025 prior to the closing of the sale transaction, which occurred in February 2016. The redemption included the payment of a make whole premium of $14 million, which will be recorded as a component of the expected gain on sale in "Operating Income" on the Statement of Income in 2016. See Note 6 for additional information on the sale of Talen Ironwood Holdings, LLC.

Preferred Stock of Talen Energy Corporation

Talen Energy Corporation is authorized under its Amended and Restated Certificate of Incorporation to issue up to 100 million shares of preferred stock. No shares of preferred stock were issued or outstanding at December 31, 2015.

Legal Separateness

The subsidiaries of Talen Energy Corporation are separate legal entities. Talen Energy Corporation's subsidiaries are not liable for the debts of Talen Energy Corporation. Accordingly, creditors of Talen Energy Corporation may not satisfy their debts from the assets of Talen Energy Corporation's subsidiaries absent a specific contractual undertaking by a subsidiary to pay Talen Energy Corporation's creditors or as required by applicable law or regulation. Similarly, Talen Energy Corporation is not liable for the debts of its subsidiaries, nor are its subsidiaries liable for the debts of one another. Accordingly, creditors of Talen Energy Corporation's subsidiaries may not satisfy their debts from the assets of Talen Energy Corporation or its other subsidiaries absent a specific contractual undertaking by Talen Energy Corporation or its other subsidiaries to pay the creditors or as required by applicable law or regulation.

Similarly, the subsidiaries of Talen Energy Supply are each separate legal entities. These subsidiaries are not liable for the debts of Talen Energy Supply. Accordingly, creditors of Talen Energy Supply may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. Similarly, Talen Energy Supply is not liable for the debts of its subsidiaries, nor are the subsidiaries liable for the debts of one another. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of Talen Energy Supply absent a specific contractual undertaking by that parent or other subsidiary to pay such creditors or as required by applicable law or regulation.

As indicated above, certain debt agreements, including, but not limited to, the Talen Energy Supply RCF, the First Lien Credit and Guaranty Agreement and the Amended STF Agreement, include contractual undertakings by certain Talen Energy subsidiaries to guarantee the obligations of other Talen Energy entities arising under those agreements.

Distribution Related Restrictions for Talen Energy Corporation

Certain of Talen Energy's debt agreements include covenants that could effectively restrict the payment of distributions, loans or advances, either directly to Talen Energy Corporation or to Talen Energy Supply or one of its subsidiaries. At December 31, 2015, $3.3 billion of Talen Energy Corporation subsidiaries net assets were restricted for the purposes of transferring funds to Talen Energy Corporation in the form of distributions, loans or advances.