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Energy Future Bonds Surging as Bankruptcy Negotiations Progress

Bonds of Energy Future Holdings Corp.’s regulated unit jumped 9 cents on the dollar this week as the power producer negotiates a pre-arranged bankruptcy plan with its creditors.

Energy Future Intermediate Holding’s $1.57 billion of 11.25 percent notes due December 2018 rose 1.94 cents on the dollar to 81.6 cents at 11 a.m. in New York, according to prices compiled by Bloomberg. Those bonds were quoted at 72.4 cents April 4.

A plan is being discussed by Energy Future’s owners, the company’s management and holders of the electricity provider’s $45.6 billion of debt. The proposal would reduce the amount of time it takes to restructure in Chapter 11, limit the chaos of a free-for-all filing and allow the company to avoid a tax bill that could exceed $7 billion.

One potential buyer of the notes has presented a so-called Big-Boy Letter, indicating to possible sellers the firm has material non-public information and may be party to the negotiations, according to two market participants with knowledge of the matter.

Allan Koenig, a spokesman at the Dallas-based company, declined to comment on the price move.

Energy Future’s acquisition at the peak of the 2007 buyout boom by private-equity firms including KKR & Co., TPG Capital and Goldman Sachs Capital Partners was essentially a bet, using $40.1 billion of debt and an $8.3 billion equity check, that natural gas prices would rise. Instead, prices have fallen 65 percent since July 2008. Gas prices set the cost of electricity in the Texas market.

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