Energy Future exit hearing set for February

February 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

The hearing to confirm the Chapter 11 bankruptcy plan of US power giant Energy Future Holdings Corp will begin in February after the company’s previously scheduled hearing was delayed in December. The court will also decide upon the proposed sale of Energy Future’s Oncor business to Florida-based NextEra Energy Inc. for $18.6bn.

Energy Future’s bankruptcy has been lengthy and complicated. The process took another unexpected turn in November when an appellate panel reversed decisions taken by the Delaware district court, which stated that Energy Future did not owe senior bondholders make-whole premiums for repaying $4bn in notes after the company’s Chapter 11 filing. According to Energy Future, the verdict contradicts a decision handed down by the Southern District of New York. The company believes that the New York Court of Appeals should ultimately deliver a verdict in the case.

The US 3rd Circuit Court of Appeals ruled in December that the company owed holders of its first-lien and second-lien notes about $800m more than the company had expected. The company also floated a revised Chapter 11 plan to the court, but that plan was rejected by a number of unsecured noteholders.

The company’s modified plan essentially shifted the cost of the most recent appeals court ruling to holders of junior unsecured notes, by reducing their payout by roughly $800m. This revised plan saw the company fall foul of its unsecured noteholders and is scheduled to be considered by the bankruptcy court in February.

“We should be entitled to a short window to explore a potentially better alternative,” said Abid Qureshi, a lawyer for Akin Gump Strauss Hauer Feld who represents the unsecured noteholders. He said the investors holding the unsecured, so-called ‘PIK notes’ also wanted to see if they could find a buyer for Oncor to replace NextEra. The company’s exit plan is contingent on the sale of its main asset, its stake in the Texas-based Oncor power distribution business, to NextEra Energy. “The plan filed does not represent the result of any negotiations with the debtors,” Mr Qureshi told US Bankruptcy Judge Christopher S. Sontchi. “It’s a complete capitulation to the demands of NextEra.”

Energy Future Holdings filed for bankruptcy protection in April 2014, seven years after the company’s enormous leveraged buyout saw the business, under its previous name TXU Corp, collapse. The company filed for Chapter 11 bankruptcy protection citing debts of $49.7bn, much of which was owed to hedge funds and investment firms. Energy Future entered Chapter 11 protection with some creditor agreements which would remove around $40bn of debt. The company also reached an agreement with a number of banks to borrow $11.8bn to finance operations during the bankruptcy process. Throughout the bankruptcy process, Energy Future has already been forced to spin off its power generation business – Luminant – and its TXU retail utility to senior lenders.

Following announcement of the delay, the company was able to agree a deal with senior lenders regarding early repayment of debts, though a deal with the company’s junior creditors has not yet been achieved. Talks will continue with junior creditors, Energy Future has confirmed.

Under the terms agreed with senior lenders, the company’s first-lien investors will get 95 percent or more of an extra $574m in make-whole pay. They also will receive $38m in fees and costs, plus some interest, assuming the company’s Chapter 11 exit plan is approved in February and the company is able to exit bankruptcy in April as planned. According to the terms of the deal, the company’s second-lien investors will receive around 87.5 percent of $244.6m in make-whole premiums, plus $17m in fees and costs.

The bankruptcy of Energy Future Holdings may be nearing completion, but there are still a number of obstacles to overcome.

Richard Summerfield