Debt and Credit Agreements (EME only)

Debt

Debt with recourse to EME totaled $3.7 billion and is classified as part of liabilities subject to compromise (LSTC) as of June 30, 2013 and December 31, 2012. Nonrecourse debt, as summarized below, is debt whereby lenders rely on specific project assets to repay such obligations. The following table summarizes long-term debt (rates and terms as of June 30, 2013), excluding LSTC:



(in millions)	Current Rate¹	Effective Interest Rate²	Maturity Date	June 30, 2013		December 31, 2012
Walnut Creek Energy Term Loan	2.53% LIBOR+2.25%	5.47%	May 2023	$	442	$	330
WCEP Holdings, LLC Term Loan	4.32% LIBOR+4.0%	7.63%	May 2023	53		52
Big Sky Wind, LLC Vendor financing loan	3.94% LIBOR+3.5%	3.94%	October 2014	226		222
High Lonesome Mesa, LLC Bonds	6.85% Fixed	6.85%	November 2017	66		69
American Bituminous Power Partners, L.P.³Bonds	0.14% Fixed	0.14%	October 2017	46		46
Viento Funding II, Inc. Term Loan	3.18% LIBOR+2.75%	5.82%	December 2020	179		191
Tapestry Wind, LLC Term Loan	2.79% LIBOR+2.5%	4.52%	December 2021	205		210
Cedro Hill Wind, LLC Term Loan	3.29% LIBOR+3.0%	6.89%	December 2025	120		125
Laredo Ridge Term Loan	3.03% LIBOR+2.75%	5.90%	March 2026	70		71
Crofton Bluffs Wind, LLC Term Loan⁴	3.16% LIBOR+2.88%	3.61%	December 2027	26		27
Broken Bow Wind, LLC Term Loan⁴	3.15% LIBOR+2.88%	3.65%	December 2027	51		52
Others	Various	Various	Various	38		43
Total debt				$	1,522	$	1,438
Less: Short-term debt				—		382
Total long-term debt				1,522		1,056
Less: Current maturities of long-term debt				118		307
Long-term debt, net of current portion				$	1,404	$	749


¹	London Interbank Offered Rate (LIBOR).


²	The effective rate at which interest expense is reflected in the financial statements after the consideration of the current rate of debt and any amounts subject to interest rate swaps. For further discussion, see Note 6—Derivative Instruments and Hedging Activities—Interest Rate Risk Management.


³	Principal payments are due annually through October 1, 2017. Interest rates are reset weekly based on current bond yields for similar securities. At June 30, 2013, the outstanding balance is supported by a letter of credit.


⁴	The interest rate swaps for this obligation will expire in December 2013 and forward starting rate swaps will become effective. For additional information, see Note 6—Derivative Instruments and Hedging Activities.

Chapter 11 Cases

The filing of the Chapter 11 Cases constitutes an event of default under various financing documents. In addition to the instruments discussed below, the Chapter 11 Cases could also potentially give rise to counterparty rights and remedies under other documents.

Senior Notes

The filing of the Chapter 11 Cases may constitute an event of default under EME's senior notes and, as a result, the principal and interest due under these debt instruments are immediately due and payable. The creditors are stayed from taking any action as a result of the default under Section 362 of the Bankruptcy Code and the obligations related to the senior notes are recorded as part of LSTC. For additional information, see Note 14—Restructuring Activities.

Viento II Financing

In July 2013, EME completed, through its subsidiary, Viento Funding II, Inc., an amendment of its Viento II Financing, a nonrecourse financing of its interests in the Wildorado, San Juan Mesa and Elkhorn Ridge wind projects. The amendment increased the financing amount to $238 million, which included a $202 million 10-year partially amortizing term loan, a $27 million 7-year letter of credit facility, and a $9 million 7-year working capital facility. Interest under the term loan accrues at LIBOR plus 2.75% initially with the rate increasing 0.25% on every fourth anniversary. EME reaffirmed the pledge of its interest in Viento Funding II, Inc. in connection with the amendment but is not a borrower or a guarantor. The amendment cured any possible event of default, and therefore the Viento Funding II debt was classified as a long-term liability on the consolidated balance sheets.

Viento Funding II terminated $78 million amortizing notional amount 3.415% interest rate swap agreements and entered into $96 million amortizing notional amount 3.03% new interest rate swap agreements to hedge the majority of the variable interest rate under the term loan. Viento Funding II also entered into $65 million forward starting interest rate swap agreements at 4.985% to hedge the majority of the final maturity payment of the term loan.

High Lonesome Financing

The filing of the Chapter 11 Cases may have constituted an event of default under the documents governing the issuance of the Series 2010A and 2010B Bonds (the Bonds). In July 2013, the applicable bondholders granted a permanent waiver of default, subject to EME assuming the state production tax credit agreement in the Chapter 11 Cases. On July 15, 2013, EME filed a notice of assumption of the production tax agreement in the Bankruptcy Court. Pursuant to expedited assumption and rejection procedures previously approved by the Bankruptcy Court, EME assumed the agreement effective as of July 15, 2013. Accordingly, the Bonds are classified as long-term at June 30, 2013. As of June 30, 2013, there were $41 million and $25 million outstanding under the Series 2010A and Series 2010B Bonds, respectively, and $11 million of outstanding letters of credit.

Credit Facilities and Letters of Credit

At June 30, 2013, letters of credit under EME's and its subsidiaries' credit facilities aggregated $244 million and were scheduled to expire as follows: $51 million in 2013, $123 million in 2014, $20 million in 2017, $19 million in 2018, $18 million in 2021, and $13 million in 2022. Standby letters of credit include $30 million issued in connection with the power purchase agreement with Southern California Edison Company (SCE), an affiliate of EME, under the Walnut Creek credit facility. At June 30, 2013, EME had $45 million of cash collateral supporting its standby letters of credit, including cash collateral under Edison Mission Wind's $75 million letter of credit facility which was completed in April 2013 and expires on April 30, 2016. Certain letters of credit are subject to automatic annual renewal provisions.

On February 20, 2013, the Bankruptcy Court approved an agreement between EME and DNB Bank, the lender pursuant to EME's secured letter of credit facility. Pursuant to this agreement, DNB Bank has agreed to forbear from sending notices of non-renewal to beneficiaries of outstanding letters of credit and to allow existing letters of credit to renew automatically in accordance with their terms. In exchange, EME consented to lift the automatic stay to permit DNB Bank to setoff any obligations due and owing under the applicable documents against EME's cash collateral.

Big Sky Turbine Financing

In October 2009, EME's subsidiary, Big Sky Wind, LLC (Big Sky), entered into turbine financing arrangements with the turbine manufacturer Suzlon Wind Energy Corporation (Suzlon) for wind turbine purchase obligations related to the 240 MW Big Sky wind project. The loan associated with the financing arrangements has a five-year final maturity. However, the satisfaction of certain criteria, including project performance and absence of serial defects, may trigger earlier repayment. In September 2012, Suzlon sued Big Sky in New York federal court seeking a declaratory judgment that the early repayment provisions had been satisfied and that Big Sky should be required to repay the loan in full in February 2013. Big Sky answered Suzlon's complaint, denied the allegations and counterclaimed. The counterclaim alleged that certain serial defects existing in the turbine equipment supplied by Suzlon precluded application of the early repayment provisions. The litigation is pending in New York federal court. The Big Sky loan is secured by a leasehold mortgage on the project's real property assets, a pledge of all other collateral of the Big Sky wind project, as well as a cash reserve account into which one-third of distributable cash flow, if any, of the Big Sky wind project is to be deposited on a monthly basis. The loan is also secured by pledges of Big Sky's direct and indirect ownership interests in the project, but is nonrecourse to EME. For further details regarding consolidated assets pledged as security for debt obligations, see Note 3—Variable Interest Entities.

As of June 30, 2013, $226 million was outstanding under the vendor financing loan at an effective interest rate of 3.94%. EME has been in discussions with Suzlon regarding a potential sale of EME's interest in the Big Sky wind project in exchange for forgiveness of debt and other consideration. These discussions are ongoing and EME has not made any decisions with respect to a potential sale. As a result, Big Sky's long-lived assets, consisting of property, plant and equipment and deferred revenue, were evaluated for impairment under the Held for Use model of Accounting Standards Codification 360 Property, Plant, and Equipment (ASC 360). The probability weighted future undiscounted cash flows associated with this asset group exceeded its carrying value at June 30, 2013 and consequently no impairment has been recognized. If EME and Suzlon do agree upon a sale transaction under terms similar to those currently under discussion, EME would record a material loss. If EME and Suzlon do not agree upon a sale transaction, Big Sky will need to arrange alternative financing, if available, to repay the loan at maturity or reach agreement with the lender to extend the maturity date of the loan. EME does not intend to make an investment in the project and is under no obligation to do so. If a restructuring of the loan or a sale effort is unsuccessful, Suzlon may foreclose on the project resulting in a write-off of the entire investment in the project. At June 30, 2013, EME's investment in the Big Sky wind project consisted of assets of $459 million and liabilities of $370 million.

Walnut Creek

Walnut Creek, a 490 MW gas-fired peaker plant, achieved commercial operation during the second quarter 2013, and accordingly, EME completed, through two wholly owned subsidiaries, Walnut Creek Energy and WCEP Holdings, LLC, the conversion of its nonrecourse financings from construction loans to 10-year amortizing term loans. Walnut Creek started earning revenues under its long-term purchase power agreement in June 2013.