It took three courtrooms to accommodate the lawyers, advisers and observers gathered for the first hearing in Energy Future Holdings’ bankruptcy case in Wilmington, Del., on Thursday.
That still left the main courtroom with standing room only. The Dallas-based energy company filed a Chapter 11 reorganization petition Tuesday.
Even given the clamor over the billions at stake, the size of the crowd surprised many of the attendees. More than 100 people jammed the main courtroom as U.S. Bankruptcy Judge Christopher Sontchi, in an early order of business, set a hearing next month on a request from EFH to use a $5.4 billion loan to fully repay some creditors, part of the company’s plan to restructure about $40 billion in debt.
About a dozen people stood near the doors, leading Sontchi to warn against stealing seats as the hearing broke for lunch.
“It’s just like in law school,” Sontchi said as lawyers laughed. “Return to your own seat.”
Security guards used two X-ray machines and metal detectors on the floors above and below Sontchi’s courtroom to speed up screening. Once inside, lawyers and professionals in dark suits sat shoulder to shoulder on the thinly padded wooden pews, some trying to type on laptops with elbows tucked awkwardly to their sides.
EFH’s restructuring plan faces a challenge from second-lien noteholders owed about $1.6 billion. The plan would spin off EFH’s deregulated business, which includes Luminant Generation and TXU Energy, to senior creditors, leaving holders of the unit’s lower-ranked debt with less than $350 million of the $7.7 billion they are owed, according to court filings.
EFH may be able to afford to give them more, Edward Weisfelner, a lawyer for the junior creditors, told Sontchi.
“We are desperate to have our day in court,” he said.
Potential changes to how electricity is regulated in Texas and a rise in natural gas prices next year may boost the company’s value enough to increase the junior creditors’ recoveries, Weisfelner said.
EFH has said it hopes to leave bankruptcy in 11 months. That may be an optimistic timetable for when the last of the creditor crowd will go away, given the 24-month term of the loan it got to finance the bankruptcy.
The company received approval to pay some fees on the $5.4 billion loan. The loan, if approved by Sontchi at a hearing set for June 5, would go to “promptly repay” about $4 billion owed to senior lenders of the Energy Future Intermediate Holding unit, company attorney Stephen Hessler said.
A second loan, of $1.9 billion, would be used to repay lower-ranked creditors of the subsidiary, which owns 80 percent of Oncor Electric Delivery.
If Weisfelner’s clients had their way, Sontchi wouldn’t get a chance to rule on the loan. The second-lien creditors say the fact that a unit of Energy Future is incorporated in Delaware isn’t enough to keep the case in Wilmington. They want the proceedings moved to Texas.
EFH was taken private in a record $48 billion leveraged buyout in 2007, but it lost billions as falling natural gas prices pulled down electricity rates. It listed $49.7 billion in liabilities, the most ever for an energy-industry bankruptcy.