Energy Future restarts bankruptcy process after failed Oncor deal

Energy Future Holdings, based in Dallas, filed for bankruptcy in April 2014.
Energy Future Holdings, based in Dallas, filed for bankruptcy in April 2014. STAR-TELEGRAM/JOYCE MARSHALL

Energy Future Holdings Corp.’s protracted reorganization saga will restart this summer, when the company offers two separate proposals designed to replace a bankruptcy plan that fell apart this month under pressure from Texas regulators.

U.S. Bankruptcy Judge Christopher Sontchi on Monday let the company seek approval of the pair of plans in succession. In August, the company’s electricity-generating units will present the court with a proposal to let senior lenders take them over. A month later, the power-line side will ask the court to either ratify a sale or permit a takeover by a different group of creditors.

“It’s time to pick ourselves up and move forward,” said Sontchi, who has been presiding over the bankruptcy case in Wilmington, Delaware, federal court since it was filed more than two years ago.

Energy Future Holdings is the parent of TXU Energy, Luminant and Oncor Electric Delivery. Its earlier reorganization plan began falling apart in April after Texas regulators imposed conditions on a proposal from Dallas-based Hunt Consolidated to take over the profitable Oncor power-line business. Investors allied with Hunt pulled out of the deal on April 30, and last week Hunt abandoned the effort.

New challenges

The new plans call for splitting Energy Future into separate companies. Each faces different challenges, and creditors are battling over the details.

The Internal Revenue Service poses the biggest risk for the generating business. The lenders planning the takeover are asking the IRS to approve a complicated tax-free reorganization. Without a favorable ruling, which is due at the end of July, the company would face a new battle among competing creditor groups.

Reorganizing the power-line businesses will be harder and may take longer, Sontchi said. Energy Future may try to sell Oncor or propose a plan to let creditors take it over.

Energy Future filed for bankruptcy protection in April 2014, with almost $50 billion in debt, much it racked up in a record leveraged buyout of TXU Corp. seven years earlier by KKR, TPG Capital and Goldman Sachs Capital Partners.

Sontchi approved the Hunt deal in December, but consumer advocates, some industrial electricity customers and regulatory experts questioned the complicated proposal. The unit that owns Oncor was to be converted into a real estate investment trust owning 121,000 miles of lines that deliver power throughout Texas. The REIT would have made money by leasing its lines to Hunt, a Dallas-based oil and gas, real estate and power company.