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Energy Future Holdings ditches restructuring plan

Energy Future Holdings bowed to pressure from eight lender groups, ditching part of its $42 billion restructuring plan and inviting bids to refinance the unit that controls its prized Oncor electricity distributor.

The Texas power provider was set to lock in a pact reached before bankruptcy with select lenders, including Fidelity Investments, that would have paid them hundreds of millions of dollars in benefits while leaving some creditors out in the cold.

But the bankruptcy judge in Delaware responded to opposition from dissident lenders by forcing talks on a rival deal, which includes an Oncor takeover that values the unit at more than $17.5 billion, offered by a group including Morgan Stanley and NextEra Energy.

“Before the case started, a consensus developed that there wasn’t enough value in Oncor” to pay creditors with a claim on it, said Amer Tiwana, a Stamford, Conn.-based managing director with CRT Capital Group who’s following the proceedings. “That notion is changing fast.”

EFH said in a regulatory filing Thursday that it was “encouraged by the interest” and would hold a court-supervised auction for proposals to reorganize the holding company that owns an 80 percent stake in Oncor. Under the original deal, Boston-based Fidelity and other lenders would have gained control of that company, Energy Future Intermediate Holding Co.

Referring to the NextEra offer, Dallas-based EFH said it will “continue to negotiate with each party that has submitted bids to date with respect to the reorganization.”

In court filings, EFH made clear that it won’t meet its original timetable to exit bankruptcy by early next year as it seeks to restructure debt taken on in a record 2007 buyout.

The company asked U.S. Bankruptcy Judge Christopher Sontchi for six more months to put a new plan together. Currently, the company has until Aug. 27 to file a plan. After that, creditors can submit their own reorganization proposals.

With so many creditors pushing for change, EFH won’t really be in control even while its plan is the only one on the table, said Erik Gordon, a law professor at the University of Michigan Ross School of Business who’s following the case.

“The company is likely to get an extension to its exclusive right to submit a plan, but ‘exclusive’ now means ‘do more to line up creditor agreements than you did last time,’ ” he said in an email.

EFH’s assistant treasurer told Sontchi in a court filing that the company wants its exclusivity extended to Feb. 23 and is seeking to push back the time needed to win creditor votes for any proposal to April 25. Previously, the company had said it planned to exit bankruptcy by the end of March.

The extra time will give the company a chance to try to salvage the tax-free spinoff structure at the heart of the pre-bankruptcy deal it’s scrapping, said CRT Capital’s Tiwana.

Without that structure, there probably won’t be enough money to repay all the creditors of Energy Future Intermediate Holding because the Internal Revenue Service would become a creditor in the case with a claim of as much as $3 billion, he said.

The plan for a competitive auction of Oncor shows how concerted pressure by lenders can force a company to revise a program that some perceive as unfair.

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