July 18, 2014

Energy Future Holdings may scuttle its restructuring plan

A company lawyer said Friday that its original restructuring plan will have to be modified or canceled after some creditors pushed a rival plan that includes a sale of Oncor.

Energy Future Holdings may be forced to reconsider its restructuring plan to pay hundreds of millions of dollars to select creditors after lenders left out in the cold forced talks on a rival deal.

The Dallas-based power company was set to lock in its plan before the fight, triggered by a rush to profit off its carcass. The resulting mess now risks scuttling the deal and imperiling the company’s stated goal of exiting bankruptcy in March. A lawyer for EFH said Friday that the agreement may be terminated within weeks.

U.S. Bankruptcy Judge Christopher Sontchi already approved two loans totaling $9.9 billion just weeks after the company’s April collapse. The loans are to help the company pay existing creditors, finance the reorganization and reward supportive lenders.

Opponents saw a third, $1.9 billion loan as their last chance to challenge the company’s $42 billion reorganization, which they said favored creditors, including Fidelity Investments.

Approving the third loan, the rebels said, would lock in much of the entire plan. A competing proposal, including a Morgan Stanley-backed bid for the bankrupt company’s prize asset, Oncor Electric Delivery, by NextEra Energy, has triggered talk among lenders about a likely auction of the unit, said a person familiar with the matter who asked not to be identified because the talks are private.

Sontchi, facing opposition by eight lender groups, set four days of hearings starting last month to let everyone have a say. His skepticism eventually sent the company into talks with the dissidents. At a hearing Friday in Wilmington, Del., Edward Sassower, a lawyer for the company, said the plan will have to be modified or canceled because of rising prices for the company’s debt and new offers for assets.

If changes can’t be made by Aug. 8 at the latest, the deal will be terminated, according to Sassower.

“Unless the company’s plan totally ignores the bankruptcy code, it usually takes strength in numbers to get a judge off that path of confirmation,” said Chip Bowles, a bankruptcy lawyer at Bingham Greenebaum Doll, who isn’t involved in the case.

EFH filed for bankruptcy April 29, seven years after it was created with the record leveraged buyout of TXU Corp. The case ranks in size with Enron’s collapse in 2001. EFH’s reorganization plan, drawn up before bankruptcy with “anchor” investors such as Boston-based Fidelity and Pacific Investment Management, called for splitting the company.

One creditor group would get the unit that controls the profitable, regulated Oncor transmission company. Another would get the unprofitable TXU Energy, which competes in the power market.

Tom Lauria, a lawyer for creditors opposed to the deal, said his clients were pleased with the announcement about the fate of the so-called restructuring support agreement.

“It sounds like it is going to die,” he said.

EFH said it worked many months to win over enough lenders to refinance the debt from the 2007 buyout by KKR, TPG Capital and Goldman Sachs. It might rack up more fees and miss its goal of exiting bankruptcy in 11 months if the loan and payments aren’t approved, the company said.

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