Energy Future Crown Jewel Creates Rift: Corporate Finance

Photographer: Matt Nager/Bloomberg

Energy Future filed for Chapter 11 protection on April 29 in a bid to restructure its $49.7 billion of debt after falling natural gas prices undercut the electricity provider’s ability to remain profitable. Close

Energy Future filed for Chapter 11 protection on April 29 in a bid to restructure its... Read More

Close
Open
Photographer: Matt Nager/Bloomberg

Energy Future filed for Chapter 11 protection on April 29 in a bid to restructure its $49.7 billion of debt after falling natural gas prices undercut the electricity provider’s ability to remain profitable.

The jockeying has begun for the prized asset of Energy Future Holdings Corp., which filed for bankruptcy in April with about $50 billion of debt after the largest leveraged buyout in history.

Energy Future passed on an offer over the weekend by NextEra Energy Inc. (NEE) and a group of second-lien bondholders to provide a loan that might have converted into majority ownership in the company’s regulated power unit, according to two people with knowledge of the situation who asked not to be identified because the talks are private. Instead, it’s pursuing a sweetened $1.9 billion loan agreement with a different group of creditors.

While falling natural gas prices undercut the electricity provider’s ability to remain profitable after its 2007 acquisition, the latest moves underscore the value of the Oncor Electric Delivery Co. unit and its steady earnings. Energy Future’s 80 percent equity stake in the utility is valued at more than $7 billion, excluding $6.3 billion in total debt, according to Spencer Cutter, a credit analyst with Bloomberg Industries.

“Oncor is a valuable asset,” Dot Matthews, an analyst who covers the utility for New York-based CreditSights Inc., said in a telephone interview. “If NextEra were to add regulated assets, that would take their risk profile down somewhat and that might help them in the market.”

New Terms

Energy Future has proposed to accept the loan from note holders including Avenue Capital Group and York Capital Partners, which would allow them to convert their financing into a majority of the equity of the reorganized Energy Future.

The improved second-lien debtor-in-possession loan initially proposed by Energy Future will convert into 60 percent of the equity in a newly reorganized company, down from 64 percent initially described in the restructuring proposal, said one of the people, who asked not to be identified because the talks are private. The interest rate on the debt will be reduced to 6.25 percent from 8 percent, the people said.

Adam McGill, a spokesman for Energy Future and Debbie Larsson, a spokeswoman for NextEra, declined to comment.

Energy Future filed for Chapter 11 protection on April 29 in a bid to restructure its $49.7 billion of debt after falling natural gas prices undercut the electricity provider’s ability to remain profitable. KKR & Co., TPG Capital and the private-equity unit of Goldman Sachs Group Inc. took Energy Future private for $48 billion.

PIK Lenders

The NextEra proposal, in collaboration with bondholders that own Energy Future Intermediate Holding’s second-lien debt, was declined by Energy Future’s board on June 22, according to the people. Terms of the plan weren’t available. The $1.9 billion loan currently being considered by the company is backed by holders of the Intermediate unit’s 11.25 percent, unsecured payment-in-kind notes due December 2018, according to the proposal.

Avenue, York, GSO Capital Partners LP, Third Avenue Management LLC and P. Schoenfeld Asset Management LP held 76 percent of those securities when Energy Future filed for court protection, which would hand them about half the ownership of the Oncor stake.

The 11.25 percent notes were quoted at 125.8 cents on the dollar yesterday, up from 82.5 cents on April 29 as Energy Future and some of its creditors said they agreed to a blueprint for a reorganization, according to prices compiled by Bloomberg.

The 20 percent of Oncor not owned by Energy Future is in the hands of Texas Transmission Investment LLC, an entity indirectly owned by an Ontario municipal pension fund and Singapore’s sovereign wealth fund.

Net income at the utility increased 24 percent last year to $432 million, according to a February regulatory filing. The company paid $310 million in dividends to Energy Future and other owners in 2013.

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; Mary Childs in New York at mchilds5@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net Mitchell Martin, Caroline Salas Gage

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.