Energy Future Holdings cleared a key hurdle in its reorganization bid, getting the green light from a bankruptcy judge to sign an agreement that would allow Dallas-based Hunt Consolidated and a group of bondholders to take over Oncor, its profitable electricity distribution business.
U.S. Bankruptcy Judge Christopher Sontchi said Thursday at a hearing in Wilmington, Del., that the restructuring agreement is necessary so Energy Future can move into the final phase of its case. In November, Sontchi will consider approving the company’s overall reorganization plan, which would allow Energy Future to exit bankruptcy.
While he said he hasn’t decided whether to give final approval to the deal to turn Oncor Electric Delivery over to Hunt and its allies, the judge praised the negotiations that led to the agreement.
“The progress to get there has been phenomenal,” he said, adding that not approving the agreement “would be disastrous.”
Hunt’s businesses include oil and gas exploration and real estate. Hunt, along with a group of Energy Future creditors, plans to raise more than $12 billion to pay off debt owed to another set of lenders. Should the plan win court approval after a vote of creditors, Energy Future would be split into two companies owned by different sets of lenders.
The full reorganization still faces opposition from those left out of the Oncor deal. They say that even though they are getting back all the principal they’re owed, the deal doesn’t pay them the full interest and an early repayment fee.
Before Sontchi ruled, bondholder James Kjorlien asked the judge to reject the restructuring agreement, claiming it would force some unsecured creditors to be treated differently than others.
“To be an unsecured creditor and have different treatment doesn’t seem fair,” he said.
In his ruling, Sontchi said such issues will be decided in November.
Hunt and some unsecured creditors would get Oncor, which sends power to more than 3 million Texas customers over 119,000 miles of power lines. Energy Future’s money-losing Luminant power-generating division, which includes coal-fired plants, would go to a different set of creditors in a spinoff designed to avoid hitting investors with a big tax bill.
The transaction, which would make Oncor part of a real estate investment trust, must be approved by Texas regulators as well as Sontchi, who has overseen the bankruptcy since it was filed in April 2014.
Energy Future filed for bankruptcy in April 2014, seven years after it was created with the $45 billion buyout of the former TXU Corp. led by investment giants KKR, TPG Capital and Goldman Sachs. At the time, the company listed liabilities of nearly $50 billion.