After 18 months in bankruptcy, Energy Future Holdings started what it hopes will be the final phase of its reorganization on Tuesday, pushing for approval of its fourth major restructuring proposal.
The Dallas-based power provider is asking U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware, to sign off on a deal that splits it in half. The question will be answered in a two-part trial that began Tuesday.
If Energy Future succeeds, it could mean a solution to problems that grew out of a record, $48 billion leveraged buyout, and end a drawn-out bankruptcy where creditors have already rejected three attempts to reorganize.
The deal would create a power distribution unit, including Oncor, Texas’s biggest electric-transmission system, and a power generating unit. Each half would be owned by separate groups of creditors including big name hedge funds specializing in distressed debt. The factions fought over terms for more than a year before reaching a deal with help from Hunt Consolidated, a Dallas-based oil and gas, real estate and power company.
“This is an enormously important day,” Marc Kieselstein, an attorney for Energy Future, said at the start of the hearing. The deal being considered came after several months “of painful, nonstop struggle,” he said.
Under the proposal, Hunt will work with lower-ranking, unsecured creditors to take over Energy Future’s regulated power-line business in a $12.6 billion deal involving cash, debt-forgiveness and new bonds. Senior creditors of Energy Future’s unregulated power-generating business will swap their debt for ownership.
The result will be two companies owned by some of the best-known distressed debt investors.
The Hunt group includes Anchorage Capital Group, Arrowgrass Capital Partners, Avenue Capital Group, BlackRock Inc., Centerbridge Partners, GSO Capital Partners and the Teacher Retirement System of Texas, according to a statement by Hunt.
The group that will own the power-generating business includes Angelo, Gordon & Co., Apollo Management Holdings, Brookfield Asset Management, Fortress Credit Opportunities Advisors, Oaktree Capital Management and Paulson & Co.
Energy Future, taken private in a $48 billion transaction in 2007, first ran into trouble after closing the record leveraged buyout by KKR & Co. and Fort Worth’s TPG Capital. Investors in the company, formerly known as TXU Corp., bet that the cost of natural gas would rise enough to justify the cost of the deal. Instead, energy prices fell.
Its current reorganization is supported by about 95 percent of senior lenders owed $12.5 billion by EFH’s electric-generating businesses, which owns the company’s power plants. More than 96 percent of lower-ranking, unsecured creditors, owed $16 billion by the same businesses, also voted for the plan.
A committee of unsecured creditors, who are owed money by the profitable, power-distribution division, oppose it, saying it would unfairly bar potential lawsuits against investors in the 2007 buyout.