Energy Future pre-bankruptcy talks continue as lender leaves

By Beth Jinks
Bloomberg News

Creditors of Energy Future Holdings Corp., taken private in the biggest leveraged buyout on record, will keep negotiating for a restructuring plan after one group quit confidential talks.

Outlines of three rival proposals were included in a filing today with the U.S. Securities and Exchange Commission. Each would restructure more than $40 billion of debt via pre-negotiated bankruptcy filings by Energy Future and most of its units, excluding regulated power-line group Oncor Electric Delivery. All of the unadopted plans keep the company and its units together post-Chapter 11.

Creditors are seeking agreement on terms ahead of a likely bankruptcy by Nov. 1, the filing shows. Lenders are divided over how much of Energy Future’s $43.6 billion in debt will be extinguished, and how lenders will carve up ownership of the Texas power company.

Energy Future is due to make about $270 million in interest payments Nov. 1 — cash more senior creditors want the company to retain by filing for bankruptcy. Energy Future’s board is scheduled to meet the week of Oct. 28.

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., TPG Capital and Goldman Sachs Capital Partners. The leveraged buyout left Energy Future with more than $40 billion in debt in an unsuccessful bet natural gas prices would rise. How much of a restructured Energy Future the private-equity owners would retain is one of the disputed points.

Consensual Restructuring

The restructuring of Energy Future’s debt won’t change any operations, customer service or involve cutting jobs or employee benefits, according to a letter sent to staff obtained by Bloomberg News, the contents of which were confirmed by Allan Koenig, a spokesman at the company.

Creditors of subsidiary Energy Future Intermediate Holding walked away from the confidential talks yesterday while directing “their advisors to continue to work with the companies and their advisors to explore further whether the parties can reach an agreement on the terms of a consensual restructuring,” the filing showed. They hold less than two- thirds of Intermediate Holding’s $1.5 billion of bonds.

Lenders including a group of first-lien holders in the deregulated Texas Competitive unit and an unidentified “significant creditor” are continuing negotiations, and extended non-disclosure agreements. The confidentiality contracts allow investors to access private information about Energy Future and their debt positions to facilitate talks.

Obtaining Loan

Energy Future is close to obtaining a debtor-in-possession loan of more than $3 billion in preparation for bankruptcy, Bloomberg News reported last week, citing people with knowledge of the situation.

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. Such a large DIP may help reassure vendors, customers, trading counterparties and regulators the company can meet its obligations.

Texas Competitive’s $1.83 billion of 10.25 percent senior unsecured notes due November 2015, which pay interest on Nov. 1, traded at 3.13 cents on the dollar as of Oct. 11, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Those securities traded as high as 31 cents on Jan. 4.

Energy Future said in April that creditors had rejected a prepackaged bankruptcy plan to restructure $32 billion in debt held by its competitive power unit. The company said in August that it “engaged in additional discussions” with a broader group of lenders and continues to evaluate restructuring options including filing for Chapter 11 bankruptcy for some or all of the company, excluding Oncor.

Oncor, the regulated and profitable power transmission and distribution business, is protected from any restructuring, according to corporate filings and Moody’s Investors Service.