What does the future hold for Energy Future Holdings?

Posted Friday, Nov. 01, 2013  comments  Print Reprints

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Energy Future Holdings, the Dallas-based electricity giant that serves most of North Texas, will make a scheduled $270 million debt payment today and avoid a bankruptcy filing for now, according to news reports.

The move comes after creditors couldn’t agree on how how to restructure the company’s roughly $40 billion in debt, Bloomberg News said. Earlier, The Wall Street Journal and Reuters, both citing unnamed sources, had also reported the likely payment.

Adam McGill, a representative for Energy Future, declined to comment.

EFH, the product of the $45 billion buyout of TXU Corp. in 2007, had nearly $1.6 billion in cash as of June 30 and could make the $270 million interest payment. Bloomberg reported that unsecured creditors wanted much more than the secured creditors were willing to give, ending negotiations and prompting the payment.

But EFH has acknowledged that it needs to restructure its operations, probably in bankruptcy court. The company wouldn’t face another sizable debt payment until next year, although a filing could come before that if creditors can agree on a restructuring plan.

It’s an outcome that few would have predicted when the buyout deal was struck. At the time it was the biggest leveraged buyout ever. But it quickly turned sour for investors and lenders.

Here are some questions and answers about how EFH arrived at its current predicament.

What went wrong?

Some of the nation’s biggest, savviest investors bet that Texas electricity prices would remain high, driven by rising natural gas prices. In Texas and other deregulated electricity markets, natural gas provides the last megawatt of power needed to meet demand, and therefore it sets the market price.

Natural gas prices kept rising for about a year after the buyout, but then fell quickly and sharply, taking the price of electricity along with it. Faced with shrinking revenue, EFH was increasingly stressed trying to pay off the billions in debt the investors borrowed to swing the deal.

Who would lose money in a bankruptcy?

First and foremost, the investors. Texas Pacific Group, Kohlberg Kravis Roberts, Goldman Sachs and other investors put $8.3 billion into the deal. They have already written off most of that but have been trying to keep at least a sliver of the company during ongoing negotiations with creditors.

Lenders will also see big losses. Moody’s Investors Service estimates that overall, EFH creditors will recover perhaps 50 cents on the dollar of about $41 billion in debt. Investors who bought that debt at steep discounts could make money.

How would it affect customers?

State regulators say they are monitoring the situation and foresee minimal impact, much like American Airlines has kept flying right through its Chapter 11 bankruptcy proceeding that started nearly two years ago.

Terry Hadley, a spokesman for the Texas Public Utility Commission, said EFH subsidiaries Luminant Generation, the state’s largest electricity producer, and TXU Energy, the state’s biggest electricity retailer, are expected to continue their operations whatever the company decides to do. Luminant operates the Comanche Peak Power Plant in Somervell County.

Even less impact is anticipated for customers of Oncor Electric Delivery, which operates the power lines serving more than 3 million customers in North Texas. Oncor, a regulated utility, has already segregated its finances from EFH and isn’t expected to be drawn into the bankruptcy, Moody’s and other observers say. EFH owns 80 percent of Oncor.

How would an EFH bankruptcy rank in size?

That depends on which subsidiaries file. According to Moody’s, if EFH and all its subsidiaries except Oncor file, it will be largest U.S. bankruptcy by a nonfinancial company, based on the amount of debt. Based on company assets, it would rank No. 4.

Jim Fuquay, 817-390-7552 Twitter: @jimfuquay

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