Energy Future debt payment risks ire of creditors

Posted Friday, Nov. 01, 2013  comments  Print Reprints
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Energy Future Holdings said Friday it made a scheduled $270 million interest payment that was a subject of intense interest as the Dallas-based electricity giant flirts with bankruptcy.

In a memo to employees, EFH said “no agreement has been reached” with creditors, but added that “we’ll keep an open line with the creditors for future discussions.”

Also Friday, EFH filed its third-quarter earnings, showing a slim $5 million net profit thanks to $114 million from its 80 percent share of the earnings at Oncor Electric Delivery and a $100 million tax benefit. EFH showed $1.9 billion in revenue, up from $1.75 billion in the same period a year earlier.

The company finished the quarter with $1.8 billion in cash and equivalents and $38 billion in long-term debt.

EFH was created with the 2007 buyout of TXU Corp. in a $45 billion deal. Its operations include Luminant Generation, the state’s largest power producer, and TXU Energy, the state’s biggest electricity retailer. It also owns 80 percent of Oncor, which operates most of the power poles and wires serving North Texas

EFH has struggled to repay those borrowings as Texas electricity prices have fallen, steadily losing money on its steep interest payments. For months, the company has been on a bankruptcy watch, although it downplayed the issue in its memo.

“There are several ways for us to address the debt issue and, despite media speculation, we have not yet determined which path to follow. Normal operations continue at the company,” EGH said.

Energy Future Holdings’ decision to pay the $270 million buys the Texas power producer as much as five extra months out of bankruptcy while inciting the ire of lenders who lose that money in a recovery. The payment came after creditors failed to agree on a reorganization plan.

Secured lenders, who would be paid out first in a reorganization, opposed Friday’s payment because the money went to bondholders.

“The secured lenders hate to see this money leaving the company,” Marc Gross, a New York-based money manager at RS Investments, said in an email. By making the payment, EFH officials “are also signaling that they are not going to give into secured lenders.”

Adam McGill, a spokesman for the company, declined to comment.

Investors seek deal

The investors who led the TXU buyout — KKR, TPG Capital and Goldman Sachs Capital Partners — have sought a consensual deal among creditors that would keep EFH together and perhaps salvage a small slice of their investment. The investors and their clients put about $8.3 billion into the deal, but already have written off most of that.

In the past two weeks, Energy Future and its advisers stepped in to try to bridge the differences between the groups, providing parameters for how such a negotiated deal could work, people familiar with the talks, who asked not to be named, told Bloomberg News.

If they file for Chapter 11 without “at least a solid framework for restructuring, then the bankruptcy would get out of control with dozens of parties all challenging one another in court,” Gross said. “That could prolong the bankruptcy and lower recoveries or any chance of the equity sponsor salvaging some of their investment.”

Secured creditors had demanded the company be split up if the $270 million coupon was paid Friday, according to another person with knowledge of the discussions. They will seek ownership of Energy Future Competitive Holdings, a subsidiary that includes Luminant and TXU Energy. That would leave the subsidiary with Oncor to other creditors.

Separating that subsidiary from the rest of the company would create a gain from an asset sale that triggers a cash tax liability of at least $2 billion, according to an April 15 regulatory filing.

This report contains material from Bloomberg News.

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

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