Energy Future Holdings files for Chapter 11 bankruptcy

Dallas-based Energy Future Holdings filed for Chapter 11 bankruptcy protection early today after reaching a deal with creditors that calls for breaking off its power generation and retail arms in exchange for reducing debt. The bankruptcy petition was filed in Delaware.

The state’s largest power company, formed in 2007 with the $45 billion buyout of the former TXU Corp. led by KKR, Texas Pacific Group and Goldman Sachs, has been struggling under the weight of $40 billion in debt as its revenues have plunged with lower prices for natural gas and electricity.

Under terms of the proposed restructuring agreement, Texas Competitive Electric Holdings — which includes the company’s unregulated power company Luminant Generation and retail provider TXU Energy — would be transferred to its first lien lenders in a deal that would eliminate approximately $23 billion of its debt, the company said in a news release. Luminant is the state’s largest power generator. TXU Energy is Texas’ biggest electricity retailer, with more than 1.5 million customers.

Energy Future Intermediate Holdings, which owns 80 percent of Oncor Electric Delivery, will remain part of Energy Future Holdings, although creditors would gain an unspecified stake in the unit under a proposal that calls for a new debt structure. Oncor, a regulated utility that operates the power lines serving much of North Texas, is not part of the bankruptcy filing.

“We are pleased to have the support of our key financial stakeholders for a consensual restructuring,” said John Young, president and chief executive officer of Energy Future Holdings, in a prepared statement. “This restructuring is focused on our balance sheet, not our operations. We fully expect to continue normal business operations during the reorganization.”

EFH said it expects to file its plan of reorganization “in the near term.” It said it hopes to have a confirmed reorganization plans within nine months and to exit from its Chapter 11 proceeding in 11 months.

The Electric Reliability Council of Texas, the state’s largest power grid, said it and state regulators have “been monitoring this situation. Prior to this filing, ERCOT has communicated, as necessary, with the affected Energy Future Holdings Corp. subsidiaries that operate in the ERCOT market to address any concerns that could impact system reliability or the efficiency of the market.”

While the bankruptcy filing has been anticipated for more than a year, EFH’s circumstances were particularly urgent now.

Thursday marks the expiration of the grace period on more than $100 million in debt payments that EFH skipped a month earlier. It also delayed filing its annual financial report, which is expected to contain a report from its auditors that would put the company in default.

EFH had been trying to reach a deal with its major creditors to prevent a free-for-all that could draw out the bankruptcy proceeding. Moody’s Investors Service last year estimated that the Texas Competitive Electric unit has roughly $30 billion in debt but is only worth about $15 billion.

KKR, TPG, Goldman Sachs and their investors, which put a total of $8.3 billion into the buyout, are expected to lose all or nearly all that money.

The purpose of a Chapter 11 reorganization is to give a company relief from debt repayment while it restructures its finances into a more sustainable form. EFH said Tuesday it arranged up to $4.5 billion in new loans for Texas Competitive Electric Holdings and $7.3 billion for Energy Future Intermediate Holdings.

Loans extended to a company after it files for bankruptcy are senior to debt accumulated before the filing.

“Our existing capital structure has become unsustainable,” Young said in the statement. “We expect that, with the support of our financial stakeholders, our restructuring can proceed expeditiously as we seek to strengthen our balance sheet and position the company for the future.”

Long slide toward bankruptcy

Here are financial results for Energy Future Holdings starting in 2006, the last year before it was created with the buyout of TXU Corp. (all amounts in billions)

Year Revenues Income (loss) Long-term debt
2006 $12.6 $2.55 $12.6
2007 $10.0 ($0.637) $38.6
2008 $11.4 ($9.8) $40.8
2009 $9.5 $0.344 $41.4
2010 $8.2 ($2.8) $34.2
2011 $7.0 ($1.9) $35.4
2012 $5.6 ($3.4) $37.8
2013* $4.6 ($0.635) $38.1

*as of June 30

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