Constellation Energy Partners LLC (NYSE MKT: CEP) today announced that a subsidiary of Exelon Corporation (NYSE: EXC) has filed a complaint against CEP in the Court of Chancery of the State of Delaware (the “Exelon Litigation”).
The Exelon subsidiary, Constellation Energy Partners Holdings, LLC ("CEPH"), was an affiliate of Constellation Energy Group, Inc. (“CEG”) until CEG merged with Exelon in 2012. Based on information provided in the complaint, CEPH has been a wholly owned subsidiary of Exelon since that merger.
CEG formed CEP in 2005 and took the company public in November 2006. Following the initial public offering, CEG retained a significant interest in CEP through its ownership of multiple securities in CEP’s highly structured classes of equity, which include Class A and Class B units, management incentive interests (Class C), and Class D interests. CEG also sponsored CEP by providing a Management Services Agreement ("MSA"). CEG’s sponsorship continued until August 2008, when CEG notified CEP of its decision to sell its upstream gas assets. CEG terminated the MSA effective December 2009, six months after CEP was required to suspend cash distributions, thereby increasing CEP's cost structure. After multiple inquiries to CEG by third-parties to become CEP's sponsor, CEG sold its interest in the Class A and Class B units to PostRock Corporation (NASDAQ: PSTR) in two separate transactions in 2010. For unspecified reasons, CEG retained the Class C and Class D interests after the sale of its other interests to PostRock.
The Exelon Litigation relates to those retained Class D interests and seeks money damages and other declarations by the Court.CEP believes that the allegations contained in the lawsuit are without merit and intends to vigorously defend itself against the claims raised in the complaint. In conjunction with its defense in the Exelon Litigation, the company anticipates that it will incur legal and other costs that may have a material effect on available cash which could impact CEP’s ability to make distributions.
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