Energy Future Holdings Corp., the Texas power generator taken private in the biggest leveraged buyout ever, is close to obtaining a loan of more than $3 billion ahead of a bankruptcy filing that may come this month, said four people with knowledge of the matter.
Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley are the key lenders vying to provide parts of the debtor-in-possession financing, and first-lien creditors to Energy Future’s Texas Competitive subsidiary have been invited to participate, said the people, who asked not to be named because the process is private. The final terms and lenders may be decided next week, according to two of the people.
The size of the loan for the former TXU Corp., which has fluctuated over the past few weeks, is now likely to be about $3.5 billion, said two of the people. Debtor-in-possession financing is funding arranged by a company going through the Chapter 11 bankruptcy process, which typically has priority over existing debt, equity and other claims.
“This is very consistent with everything we have been saying all along and we expect a filing soon,” James Hempstead, a credit analyst at Moody’s Investors Service Inc., said in a telephone interview.
Adam McGill, a spokesman for Dallas-based Energy Future, declined to comment, while Evercore Partners Inc. (EVR), the company’s restructuring adviser, didn’t reply to a request for comment. Representatives at Morgan Stanley, Citigroup and JPMorgan declined to comment, while an official at Bank of America didn’t respond to a request for comment.
Some Energy Future creditors continued to negotiate in New York this week, seeking consensus on a restructuring plan ahead of filing for Chapter 11, said one of the people. Key creditors have signed non-disclosure agreements for the talks, which expire Oct. 14 and may be extended, the person said.
“The discussions that are underway right now are not about valuation and mostly about how the losses will be allocated,” Hempstead said. “At the end of the day, we think a filing will be organized and amenable as opposed to disorganized and contentious.”
Texas’s largest electricity provider has struggled to reduce debt since it was taken over in a $48 billion deal in 2007 led by KKR & Co. (KKR), TPG Capital and Goldman Sachs Capital Partners. The biggest-ever leveraged buyout left Energy Future with more than $40 billion in debt in a bet natural gas prices would rise. Instead, they plunged to below $2 from a July 2008 high of more than $13 per million British thermal units.
The company said in April that creditors had rejected a prepackaged bankruptcy plan to restructure $32 billion in debt held by Energy Future’s competitive power unit. The plan called for creditors to forgive obligations in exchange for equity and $5 billion in cash and new debt.
Energy Future, which had $43.6 billion in debt as of the end of June, said in August that it has “engaged in additional discussions” with a broader group of creditors and continues to evaluate restructuring options including filing for Chapter 11 bankruptcy for some or all of the company, excluding power-line unit Oncor Electric Delivery Co.
Oncor, the regulated and profitable power transmission and distribution business, is protected from any restructuring, according to corporate filings and credit ratings company Moody’s Investors Service.
Energy Future is due to make interest payments Nov. 1 on two of its unsecured bonds, a deadline that is fueling restructuring negotiations, Marathon Asset Management LP Chief Executive Officer and co-founder Bruce Richards said Aug. 19. Marathon, which invests about $10 billion, owns some Energy Future debt.