Energy Future Unit Said to Plan $9 Billion Debt Deal

A deregulated unit of Energy Future Holdings Corp. that filed for bankruptcy protection last week is planning to issue $9 billion of new debt to pay senior creditors including Apollo Global Management LLC (APO) and Oaktree Capital Group LLC (OAK), according to two people with knowledge of the deal.

First-lien lenders to the Texas Competitive Electric Holdings subsidiary will forgive about $23 billion of debt in exchange for ownership of the restructured company as well as proceeds from the $9 billion transaction, according to court documents and the people, who asked not to be identified, citing lack of authorization to speak publicly.

The other lenders include Centerbridge Capital Partners LP and Angelo Gordon & Co.

Energy Future, a Dallas-based power producer taken private in a record-setting leveraged buyout, filed for bankruptcy April 29 with a proposal to restructure $40 billion of $49.7 billion in liabilities. The LBO was a bet that natural gas prices, which set the cost of electricity in Texas, would rise. Instead, prices have fallen more than 65 percent since July 2008.

KKR & Co., TPG Capital and the private-equity unit of Goldman Sachs Group Inc. (GS), which took the electricity provider private in 2007, will receive less than a 1 percent ownership stake in the reorganized parent Energy Future, which will no longer control the Texas Competitive unit.

New Stock

Texas Competitive is worth about $18 billion, according to court papers filed April 29. The new stock in that unit will be worth about $10 billion once the company completes its bankruptcy reorganization.

The partnership that owns Oncor Electric Delivery Co., the regulated, electricity-transmission provider, is worth about $17 billion, according to the court documents. Energy Future indirectly owns about 80 percent of that partnership.

The company said in court papers that those values were “illustrative only” and were based on trading prices of the company’s debt and the proposed deal with creditors.

Adam McGill, a spokesman at Energy Future, declined to comment on the restructuring.

Texas Competitive’s 10.25 percent unsecured bonds that mature next year rose more than 3 percent today to 7.88 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Under the U.S. Bankruptcy Code, the company must win court approval to issue the debt. The tax structure of the agreement with Texas Competitive creditors also requires approval from the Internal Revenue Service, according to court filings.

The case is Energy Future Holdings Corp., 14-bk-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Richard Bravo in New York at rbravo5@bloomberg.net; Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net; Shannon D. Harrington at sharrington6@bloomberg.net Charles Carter

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