Signage is seen at the United States Bankruptcy Court for the Southern District of New York in Manhattan, New York, U.S., August 24, 2020. REUTERS/Andrew Kelly

May 10 (Reuters) – Talen Energy Supply, a unit of Talen Energy Corp which owns several of its power plants, filed for bankruptcy after rising natural gas prices squeezed its cash.

The Woodlands, Texas-based company, which operates 18 power generation facilities, filed for Chapter 11 protection in U.S. Bankruptcy Court for the Southern District of Texas on Monday evening, according to court documents. It aims to significantly reduce its $4.5 billion in debt and bring $1.65 billion in new equity to certain bondholders, according to the documents.

The company says it is committed to eliminating coal at all of its facilities and hopes the proposed restructuring will help accelerate its “clean energy transformation”.

The proposal has support from holders of 62% of the company’s debentures, who have also agreed to convert $1.4 billion of their existing debt into company stock. Talen Energy Supply says it expects more support from these creditors in the coming weeks.

“Our company is at an important inflection point to strategically reposition TES for long-term value creation,” CEO Alejandro Hernandez said in a statement.

Talen Energy Supply had used derivative contracts to limit its exposure to commodity price volatility risk, but the company ended up being forced to provide more cash collateral to peers as prices surged in 2021, according to court documents.

Of the company’s 18 factories, eight run on natural gas.

In addition to the agreement with bondholders, Talen Energy Supply has lined up a $1.76 billion loan from Citigroup, Goldman Sachs and the Royal Bank of Canada that would fund operations during the bankruptcy process.

The company’s attorneys are scheduled to appear Tuesday afternoon before US Bankruptcy Judge Marvin Isgur.

Reporting by Maria Chutchian in New York Editing by Alexia Garamfalvi and Matthew Lewis

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