March 26, 2014

Energy Future stakeholders nearing Chapter 11 deal

Energy Future’s management and EFH’s creditors have been working toward a plan that would avoid a free-for-all during Chapter 11 bankruptcy proceedings.

Energy Future Holding’s creditors, owners and management are making progress on a last-minute deal that would speed a bankruptcy reorganization for the Dallas-based electricity company, according to two people with direct knowledge of the talks.

A group of senior lenders, who walked away from similar talks in October, signed nondisclosure agreements allowing them to access private information to facilitate discussions, said the people, who asked not to be identified because the transaction is private. Those debt holders are in a group that owns loans in EFH’s subsidiary for its deregulated operations.

That unit includes Luminant Generation, which is the state’s biggest power producer, and TXU Energy, the state’s biggest electricity retailer. Its creditors include Apollo Global Management, Oaktree Capital Group and Centerbridge Capital Partners.

Energy Future’s management, the private-equity investors who led the $45 billion buyout of the former TXU Corp. in 2007, and EFH’s creditors have been working toward a plan that would avoid a free-for-all during Chapter 11 bankruptcy proceedings. EFH has struggled to pay its heavy debt ever since natural gas prices collapsed starting in 2008 and dragged down the price of electricity in the state.

The investors and the unsecured lenders of the subsidiary that owns 80 percent of Oncor Electric Delivery have agreed to the restructuring plan, but Fidelity Investments, a key bondholder in EFH, has balked, one of the people said this month. The investors, led by KKR & Co., TPG Capital and Goldman Sachs Capital Partners, put $8.3 billion into the TXU buyout and are trying to salvage at least a piece of ownership in the company.

Adam McGill, a spokesman for EFH, declined to comment, as did Carissa Felger, a spokeswoman for Oaktree, and Charles Zehren, a spokesman for Apollo.

EFH may file for bankruptcy by the end of the month, when auditors are expected to raise doubts about its ability to remain a going concern. Failure to get creditors on board with a reorganization plan may exacerbate the length of a bankruptcy, which would need to resolve claims on 75 bonds and loans held by at least 600 creditors, according to data compiled by Bloomberg.

In either event, the company has said its operations will continue and should not affect Texas power users.

Earlier this month, EFH was making progress obtaining commitments from lenders for about $7.2 billion in debtor-in-possession loans, typically used to fund operations during Chapter 11 proceedings. A second loan for as much as $2 billion would give the company the option of repaying existing second-lien debt.

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