EFH files $42bn restructuring plan

June 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Nearly 12 months after filing for Chapter 11 bankruptcy protection, Energy Future Holdings Corp has filed the restructuring plan it hopes will allow the reorganisation of the company’s $42bn debt load, and finally see the firm exit bankruptcy. The company’s plan includes spinning off one major division, as well settling around $800m worth of intercompany claims.

The firm initially filed for bankruptcy protection in 2014 as a result of the collapse of natural gas prices. The collapse made it impossible for EFH to service its enormous debt obligations which came about following a 2007 leveraged buyout of the company.

EFH hopes to put the plan up for confirmation in November with full consensual backing from creditors, with a view to the company exiting bankruptcy protection by the end of the year. But the chances of the plan achieving such a level of approval seem somewhat slim. Indeed, several creditor groups expressed their consternation at the announcement of the plan in court. Fighting among creditor groups is likely to continue. EFH’s time in bankruptcy protection has been punctuated by disagreements between the company’s lower ranking creditors and senior bondholders. It was the lower ranking creditors who forced EFH to abandon its previous attempts to split the business between different groups of favoured creditors.

However, according to the documentation filed in court, there are a number of similarities between the company’s new restructuring plan and a former plan proposed by the firm around the time of the initial bankruptcy filing. In July 2014, EFH abandoned a pre-packaged restructuring deal after seeing its debt trading at higher values. The company is also believed to have received several new proposals from a group of junior noteholders, though those offers are not believed to have materialised into anything concrete.

Under the terms of the newly filed restructuring plan, EFH will be split in two, spinning off its Texas Competitive Electric Holdings (TCEH) division which will form a standalone company under the primary ownership of EFH’s highest lenders. Spinning off TCEH, whose first lien creditors are owed approximately $25bn, would allow a $700m general unsecured claim for the TCEH estate against EFH that would go toward the recovery for TCEH creditors, plus up to $105m in additional disbursements.

EFH’s considerable stake in the profitable electricity transmission firm Oncor is likely to be sold off at auction, recapitalised in a creditor-backed deal, or some combination of the two, according to the plan. The new reorganisation plan also allows the company’s directors to consider alternative plans, particularly those plans which have an emphasis on maximising creditor value.

The company’s restructuring plan and subsequent exit from Chapter 11 is contingent on the plan winning the approval or confirmation of the judge presiding over the case. Following the filing of the company’s plan at a hearing in the US Bankruptcy Court in Wilmington, Delaware, Edward Sassower, the lawyer for the former TXU Corp noted that “the time is right to begin a determined march toward confirmation.”

Irrespective of the company’s restructuring plan, EFH has other battles on its hands. On 20 April, a number of hedge funds asked a federal judge to allow them try to overturn Energy Future’s decision to refinance almost $3bn in first-lien notes without paying them a ‘make-whole’ premium. The funds, and other note holders, including BlueMountain Capital Management LLC, Cyrus Capital Partners LP and Halcyon Asset Management LLC, are hoping to extract an additional $431m from EFH.

Richard Summerfield