ISDA Group Rebuffs Aurelius Claim to Trigger Texas Competitive Debt Swaps

A committee of banks and investment firms unanimously rejected hedge fund Aurelius Capital Management LP’s claim that Energy Future Holdings Corp. triggered payouts on $1.2 billion of credit-default swaps tied to one of its units.

The 15 firms that comprise the group said a “bankruptcy credit event” hasn’t occurred, according to the website of the International Swaps and Derivatives Association. Aurelius said last week that Texas Competitive Electric Holdings Co. is insolvent, which would prompt the payouts.

The New York-based hedge fund, which unsuccessfully tried in February to prove that the unit of the power company was in default, asked the swaps committee to vote after Energy Future, formerly called TXU Corp., reported a $705 million second- quarter loss as wholesale and retail electricity sales fell.

Stephen Sigmund, an Aurelius spokesman, couldn’t immediately provide comment.

Credit-default swaps on Dallas-based Energy Future, declined 0.4 percentage points to 52.1 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $5.21 million initially and $500,000 annually to protect $10 million of Energy Future’s debt.

Energy Future said in an Aug. 15 registration amendment that outstanding debt at the unit exceeds its enterprise value, a “flat-out admission” that it’s insolvent, according to Aurelius. The hedge fund also cited new environmental regulations and natural gas prices that have plunged since KKR & Co. and TPG Capital bought the company in 2007 in a $43.2 billion transaction, the largest leveraged buyout in history.

BlueMountain, JPMorgan

All 15 members of the committee, including JPMorgan Chase & Co., Pacific Investment Management Co., BlueMountain Capital Management LLC, and DE Shaw & Co., voted against the claim.

Banks, hedge funds and other money managers had bought and sold credit swaps that protect against a default on a net $1.2 billion of Texas Competitive obligations as of Aug. 19, according to the Depository Trust & Clearing Corp., which runs a central repository for the market.

To contact the reporter on this story: Mary Childs in New York at

To contact the editor responsible for this story: Alan Goldstein at

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