Fidelity Investments, which drew the ire of Energy Future Holdings Corp. and its creditors by playing hardball during restructuring talks, is reaping the rewards of a bidding war over the former TXU Corp.’s prized asset.
Fidelity has seen the value of the $471 million of unsecured debt it owns in Energy Future’s parent company skyrocket by as much as $200 million, according to data compiled by Bloomberg. The bonds rallied this week after NextEra Energy Inc. (NEE) and a group of creditors disclosed an alternate restructuring agreement that put a higher valuation on the Dallas-based power producer.
NextEra attempted to woo Fidelity’s cooperation by saying its plan would have given the bondholders that include the Boston-based firm a $20 million-or-greater cash distribution compared with Energy Future’s proposal, according to a court document. That proposal would have created a pathway for the utility to takeover Energy Future’s profitable Oncor Electric Delivery Co. unit.
Creditors are competing for the investment firm’s support because Fidelity owns more than $1.7 billion of Energy Future debt throughout its capital structure, making the money manager a vital component of any reorganization proposal that seeks to resolve claims on 75 bonds and loans held by at least 600 lenders, according to data compiled by Bloomberg.
Fidelity angered Energy Future and its creditors last October when the manager’s intransigent stance helped dissolve negotiations that may have sped a pre-arranged bankruptcy compromise.
Fidelity holds about $471 million of Energy Future’s unsecured notes issued by the parent company, according to an April 29 court filing. That debt alone may have gains of as much as $200 million in value since the company went bankrupt, data compiled by Bloomberg show.
Energy Future’s $200.6 million of 6.5 percent notes due November 2024 rose 11.8 cents on the dollar to 74.9 cents on June 24, the highest level since June 2008 and up from 33.5 cents on April 29, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
NextEra and the group of creditors argued to the bankruptcy judge that Fidelity received preferential treatment in negotiating a restructuring agreement favored by Energy Future, according to another court filing this week. NextEra’s plan is better because it would allow junior creditors to recover more money, not just a select few, according to the group.
NextEra and the group of second-lien bondholders floated an alternate restructuring plan to the company that would result in a merger between the Juno Beach, Florida-based utility and Energy Future, according to a filing this week.
Energy Future rejected the offer in favor of the previously arranged proposal. The power producer 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.
Investors that agreed to the company’s restructuring proposal are restricted from selling their holdings while the plan is being implemented, according to the April 29 court filing. Energy Future’s plan may be derailed if NextEra’s alternate strategy gains traction after a judge rules on a key measure June 30.
KKR & Co., TPG Capital and the private-equity unit of Goldman Sachs Group Inc. took the power producer private for $48 billion in 2007 in the largest leveraged buyout on record. The acquisition was a bet natural gas prices would rise; instead, prices have fallen more than 65 percent since July 2008. Gas prices guide the cost of electricity in the deregulated Texas market.
In October, Fidelity failed to attend a meeting that included every influential Energy Future creditor from Apollo Global Management LLC to Oaktree Capital Group LLC that was meant to cobble together a bankruptcy plan. Since no plan was reached, the power company made a $270 million interest payment to junior bondholders, angering senior lenders who would have had a claim to that money in a recovery.
In March, as Energy Future faced possible defaults that would have thrown it into a disorganized bankruptcy, Fidelity was the lone holdout in a deal reached between the company’s owners KKR, TPG, Goldman Sachs and a group of unsecured creditors that included Avenue Capital Group and York Capital Partners.
The bankruptcy case is Energy Future Holdings Corp., 14-bk-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the editors responsible for this story: Shannon D. Harrington at firstname.lastname@example.org Caroline Salas Gage, Mitchell Martin