Energy Future’s Second-Lien Notes Rally Before Coupon Payment

Energy Future Holdings Corp.’s second-lien notes have rallied by the most in four months during the past three days, signaling that traders expect the electricity provider headed toward a pre-negotiated bankruptcy will make a $46 million payment due tomorrow.

The power generator’s $1.23 billion of 15 percent bonds due in April 2021 have climbed 3.75 cents since Sept. 25 to 22.25 cents on the dollar as of 2:57 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The payment “could be a catalyst for the long-awaited restructuring,” CreditSights Inc. analysts Andy DeVries and Charles Johnston wrote in a note dated yesterday. “At this point, near-term loan and bond prices are being driven by behind-the-scenes negotiations that we are not privy to.”

Texas’s largest electricity provider, formerly known as TXU Corp., has struggled since a record 2007 leveraged buyout left it with more than $40 billion of debt in a gamble natural gas prices would rise. Prices plunged 70 percent from a July 2008 high.

Creditors are working on a prearranged bankruptcy plan to reduce debt at the company, which was taken private by KKR & Co., TPG Capital and Goldman Sachs Capital Partners for $48 billion. Lenders turned down an initial proposal advanced by the company, according to an April 15 regulatory filing. The electricity provider has to make $270 million of coupon payments Nov. 1.

Allan Koenig, a spokesman for the Dallas-based company, declined to comment on the trading levels of the bond.

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.