Six years after a record $48 billion buyout left Energy Future Holdings Corp. with debt it couldn’t repay, the power producer formerly known as TXU Corp. is closing in on a last-minute plan to speed its bankruptcy reorganization.
The Dallas-based company’s board of directors is meeting today after loan holders who walked away from talks in October rejoined negotiations, according to two people with knowledge of the meetings. The October discussions were an attempt to come up with a pre-arranged Chapter 11 blueprint.
The latest developments increase the odds that Energy Future, taken private in 2007 by KKR & Co., TPG Capital and Goldman Sachs Capital Partners, will be able to avoid a reorganization that would drag on for years, increasing legal costs and advisory fees. A bankruptcy, which may come as soon as March 31, would need to resolve claims on 75 bonds and loans held by at least 600 creditors, data compiled by Bloomberg show.
“It’s kind of a game of chicken: who’s going to give first, and if neither side gives, who has more to lose going into bankruptcy?” Joseph DeSapri, a credit analyst at Morningstar Inc., said in a telephone interview. “They could have come to this conclusion in October as well.”
Energy Future’s management, its private-equity sponsors, unsecured lenders to the parent and creditors to its regulated Energy Future Intermediate Holding division have been working toward a plan that would avoid a free-for-all during Chapter 11 bankruptcy proceedings.
Board members include John Young, chief executive officer of Energy Future, David Bonderman, a founding partner of TPG, and former Commerce Secretary Donald L. Evans.
A committee of senior lenders to a deregulated Energy Future unit has now signed non-disclosure agreements, allowing them to access private information to facilitate those discussions, said the people, who asked not to be identified because the talks are private. Apollo Global Management LLC, Oaktree Capital Group LLC and Centerbridge Capital Partners LLC are all creditors to that division.
Energy Future’s $3.8 billion term loan due Oct. 10, was quoted at 71.3 cents on the dollar yesterday, up from 69.4 cents on Feb. 13. according to prices compiled by Bloomberg.
The power producer’s private-equity owners have been seeking to forge a reorganization plan that would keep the power giant together, giving them a chance to retain a stake. Their 2007 acquisition was essentially a bet, using $40.1 billion of debt, that natural-gas prices would rise. Instead prices, which set the cost of electricity, have fallen 68 percent since July 2008.
The sponsors and the unsecured lenders at the Intermediate unit have agreed to the restructuring plan; Fidelity Investments, which is a key bondholder in the parent company, has balked so far, one of the people said earlier this month.
“Having this complex of a capital structure and that many types of creditors and influential creditors, they’re all vying for their own piece of the pie,” DeSapri said. “It’s hard to corral that type of support, and last minute to do it, too.”
Adam McGill, a spokesman for the company, declined to comment, as did Carissa Felger, a spokeswoman for Oaktree at Sard Verbinnen & Co. Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., declined to comment.
A failure to keep the regulated and deregulated portions of the company intact could trigger a $2 billion tax bill at the parent company, Energy Future said in an April 15 regulatory filing, putting the recovery of some unsecured classes of investors in jeopardy.
Previous negotiations fell apart last year right before Energy Future made a $270 million interest payment on Nov. 1 to junior bondholders, money that senior lenders didn’t want to see leave the company.
Energy Future may file for bankruptcy by the end of this month when auditors are expected to raise doubts about its 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.
Earlier this month, Energy Future was making progress in obtaining commitments from lenders for about $7.2 billion in debtor-in-possession loans for its regulated businesses. The financing, typically used to fund operations during Chapter 11 proceedings, would include a $5.2 billion portion being provided by lenders including Citigroup Inc., Morgan Stanley and Deutsche Bank AG. A second loan for as much as $2 billion would give the company the option of repaying existing second-lien debt at its Intermediate division.
Energy Future earned $5 million in the third quarter of 2013, its first net income since the fourth quarter of 2010, according to data compiled by Bloomberg. Total liabilities were $50.2 billion as of Sept. 30, compared with total assets of $38.7 billion.
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