Energy Future Holdings Corp. is in talks with creditors on an 11th-hour plan that would speed a bankruptcy reorganization of the electricity provider known as TXU Corp. when it was bought in a $48 billion leveraged buyout, said two people with direct knowledge of the discussions.
While private-equity firms KKR & Co., TPG Capital and Goldman Sachs Capital Partners that led the buyout and unsecured lenders to the company’s Energy Future Intermediate Holding Co. unit have agreed to a deal, Fidelity Investments, which is a key bondholder in the parent company, has balked so far, said the people, who asked not to be identified because the talks are private.
Adam McGill, a spokesman at Energy Future, and Tom Johnson of Abernathy MacGregor Group, a spokesman for the private-equity owners, declined to comment. Vincent Loporchio, a spokesman for Boston-based Fidelity, also declined to comment, citing the firm’s policy not to discuss individual holdings.
Energy Future was taken private six years ago in the biggest leveraged buyout ever on a bet that natural gas prices would rise. The prices, which set the cost of electricity in the state, instead plunged, triggering 10 straight quarterly losses.
The Dallas-based company is now seeking to restructure $45.6 billion of debt before month-end, when auditors may raise doubts about Energy Future’s ability to remain a going concern. Any qualification would constitute a default under terms of the company’s secured debt, Fitch Ratings analysts Shalini Mahajan and Philip Smyth wrote in a Dec. 3 note.
The electricity provider also may violate a restriction on how much debt it can have relative to earnings in the first half of 2014, which the Fitch analysts said also would trigger a default.
The private-equity firms have been seeking to forge a reorganization plan that would keep the power giant together, giving them a chance to retain an equity stake. A failure to keep the regulated and deregulated portions of the company intact could trigger a tax bill of at least $2 billion, the company said in a regulatory filing last April.
As part of the latest talks, the groups are seeking to devise a bankruptcy agreement that may entice debtholders at the deregulated division to approve a restructuring that wouldn’t trigger the tax bill, the people said.
Those lenders, including Apollo Global Management LLC, Oaktree Capital Group LLC and Centerbridge Capital Partners LP, aren’t involved in the latest discussions, the people said. Talks on such a deal broke down last year after lenders failed to reach a consensus, and Energy Future opted to buy more time by making a $270 million interest payment on Nov. 1 to junior bondholders. Secured lenders, who would be paid out first in a reorganization, didn’t want the payments made.
The company renewed efforts last month to line up loans that would fund its operations during a bankruptcy, meeting with banks in New York to entertain proposals, people with knowledge of the deliberations said at the time.
Energy Future previously had obtained commitments for $4.4 billion of loans as creditors discussed four rival restructuring proposals, according to a Nov. 1 regulatory filing.
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