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Energy Future’s Second-Lien Notes Rally Before Coupon Payment

Energy Future Holdings Corp.’s second-lien notes have rallied by the most in four months during the past three days, signaling that traders expect the electricity provider headed toward a pre-negotiated bankruptcy will make a $46 million payment due tomorrow.

The power generator’s $1.23 billion of 15 percent bonds due in April 2021 have climbed 3.75 cents since Sept. 25 to 22.25 cents on the dollar as of 2:57 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The payment “could be a catalyst for the long-awaited restructuring,” CreditSights Inc. analysts Andy DeVries and Charles Johnston wrote in a note dated yesterday. “At this point, near-term loan and bond prices are being driven by behind-the-scenes negotiations that we are not privy to.”

Texas’s largest electricity provider, formerly known as TXU Corp., has struggled since a record 2007 leveraged buyout left it with more than $40 billion of debt in a gamble natural gas prices would rise. Prices plunged 70 percent from a July 2008 high.

Creditors are working on a prearranged bankruptcy plan to reduce debt at the company, which was taken private by KKR & Co., TPG Capital and Goldman Sachs Capital Partners for $48 billion. Lenders turned down an initial proposal advanced by the company, according to an April 15 regulatory filing. The electricity provider has to make $270 million of coupon payments Nov. 1.

Allan Koenig, a spokesman for the Dallas-based company, declined to comment on the trading levels of the bond.

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