Creditors of Energy Future Holdings Corp.’s regulated-unit holding company are working on a debt reduction plan as part of a broader restructuring being negotiated at the former TXU Corp., people with knowledge of the matter said.
Junior bondholders at Energy Future Intermediate Holding Co., which holds most of regulated Oncor Electric Delivery Co. and its almost $8 billion in debt, hired Centerview Partners LLC and Akin Gump Strauss Hauer & Feld LLP to advise on de-leveraging the unit’s obligations, said the people, who asked not to be named because the matter is private.
TXU, Texas’s largest electricity provider, was taken private for $48 billion in 2007 by KKR & Co., TPG Capital and Goldman Sachs Capital Partners in the largest ever leveraged buyout. The company has struggled to generate profits as wholesale electricity prices have dropped on a decline in natural gas costs, which have plunged more than 70 percent from a 2008 high.
EFIH’s plan -- expected in August or September, the people said -- may help smooth the way for a companywide agreement after senior creditors at Energy Future’s unregulated unit scuttled a pre-packaged bankruptcy proposal from the company, according to an April regulatory filing. Those lenders cited the need for the Dallas-based energy producer to restructure the balance sheet at money-losing EFIH first.
Creditors to both businesses must reach agreement on valuations to deliver a group resolution, or may decide to pursue separate restructurings, said the people. The objective is to get senior creditors already in talks to reduce $32 billion in borrowings at the unregulated businesses to reach a deal that would give lenders majority ownership of the parent in exchange for some debt.
EFIH owns 80 percent of Oncor Electric, a regulated power-line utility that doesn’t earn enough to cover EFIH’s interest costs. Separating the regulated and unregulated units risks triggering additional tax liabilities, one of the people said.
Energy Future Holdings said in its April 15 filing that separating Texas Competitive Electric Holdings, its unregulated power unit, could trigger a cash tax liability in excess of $2 billion. In addition, a separation of EFIH or Oncor from its parent could result in a taxable event to Energy Future, according to the filing.
Representatives for Energy Future, Centerview and Akin Gump declined to comment. Debtwire previously reported that EFIH had hired Centerview and Akin Gump.
EFIH’s plan may reignite negotiations that largely stalled when the April proposal was rejected. Senior creditors to Texas Competitive Electric Holdings want to reach a restructuring deal before November, when interest payments on lower-ranked bonds are due.
One of those payments is for Texas Competitive’s $1.83 billion of 10.25 percent unsecured bonds due November 2015, which traded at 7.75 cents on the dollar on July 18, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities traded as high as 31 cents on Jan. 4.
Centerview and Akin represent about $1.4 billion of payment-in-kind EFIH bondholders, said the people. Payment-in-kind debt allows companies to pay interest with additional debt rather than cash.
EFIH’s $2.18 billion of 10 percent first-lien notes due December 2020 fell 1 cent on the dollar to 110.25 cents, yielding 8.12 percent in New York today, according to Trace.
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