TXU Calls Aurelius' Assertion of Default on $24 Billion Loan `Meritless'

Energy Future Holdings Corp., formerly known as TXU Corp., is rejecting an assertion by hedge fund Aurelius Capital Management LP that it’s in default on a $23.9 billion loan that financed its record buyout by KKR & Co. and TPG Capital.

The allegations are “utterly meritless,” Robert Walters, general counsel of Energy Future, said in a telephone interview. Stephen Sigmund, spokesman for Aurelius, declined to comment.

Aurelius, led by Mark Brodksy, said in a letter to Citigroup Inc., administrator of the buyout loans, that payments to the Dallas-based company by one of its units aren’t in compliance with the credit agreement, Energy Future said in a Feb. 25 regulatory filing. The electricity provider purchased some of its debt at a discount last year and said Feb. 18 that profit for the last three months rose 18 percent to $161 million on buybacks even as revenue dropped because of low natural gas prices. Energy Future owes $39.6 billion in loans and bonds.

“Owners of the term loan would love a default and a restructuring because then the subsidiary could stop bleeding high coupon interest payments,” Andy DeVries, an analyst for debt-research firm CreditSights Inc. in New York, said in a Feb. 25 e-mail.

Energy Future’s term loan due October 2014 rose to 84 cents on the dollar on Feb. 25 from 82.5 cents a day earlier, according to information provider Markit Group Ltd.

The company sold $350 million of second-lien notes on Oct. 15 yielding 15 percent, according to data compiled by Bloomberg.

Aurelius Stake

Aurelius holds about $50 million of loans issued by Energy Future unit Texas Competitive Electric Holdings Company LLC, according to the Feb. 25 filing with the U.S. Securities & Exchange Commission. The New York-based hedge fund is the only lender alleging a default, Energy Future said.

“We intend to defend ourselves vigorously against these allegations and to continue operating in compliance with the terms and conditions” of debt agreements, the company said in the filing.

Citigroup will lead discussions with lenders about Aurelius’s assertion, according to a person with knowledge of the matter, who declined to be identified because the information isn’t public. Danielle Romero-Apsilos, a spokeswoman for the New York-based bank, declined to comment.

Aurelius is among bondholders sponsoring an alternative reorganization proposal in the bankruptcy proceedings of Tribune Co., taken private for more than $8 billion in 2007 by billionaire property investor Sam Zell. The hedge fund was also party to lawsuits and restructurings involving General Motors Corp., MBIA Inc., Ambac Assurance Corp., Dubai World and Vitro SAB.

$45 Billion Buyout

TXU, then the largest electricity supplier in Texas, was taken private for about $45 billion in 2007. Energy Future’s revenue has been curbed by low natural gas prices, which help to set the price of power in the Texas market, where the company has more than 15,400 megawatts of generation capacity. Natural gas has fallen 47 percent since the buyout was announced in Feb. 2007.

The company’s fourth-quarter results are “weaker than expected,” Peter Thornton, credit analyst at KDP Investment Advisors Inc., said in a Feb. 23 report. “We continue to favor the TCEH term loan as a reasonable investment, but think the senior unsecured notes of both TCEH and TXU are facing little economic recovery in an eventual work-out and are therefore reiterating our sell recommendation.”

To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Emre Peker in New York at epeker2@bloomberg.net.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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