Before Energy Future Holdings Corp. can start fighting junior creditors opposed to the company’s more-than $40 billion bankruptcy plan, the judge overseeing the case must pick the battleground.
Minutes after Energy Future’s Chapter 11 filing hit the docket April 29, the junior creditors asked U.S. Bankruptcy Judge Christopher Sontchi to move the case from Wilmington, Delaware, one of the busiest bankruptcy venues in the U.S., to a federal courthouse in Dallas, just blocks from company headquarters.
A trustee for the lower-ranking creditors wants Sontchi to consider the request at a hearing today, saying operations would face fewer disruptions if the biggest bankruptcy in the energy industry were handled closer to home. That decision will probably be the first important ruling Sontchi makes, said Thomas J. Salerno, a bankruptcy attorney not involved in the case.
“As a practical matter, if you let too much grass grow under the case, the judge is not going to change venue,” said Salerno, a shareholder at Gordon Silver Ltd. in Las Vegas.
The Dallas-based electricity provider, taken private seven years ago by Henry Kravis and David Bonderman in a record leveraged buyout, filed for bankruptcy this week after negotiating a restructuring deal among creditors, owners and management.
Much of today’s hearing will be devoted to routine matters, including motions to keep paying employees and critical vendors. The judge will also consider interim financing proposals.
More than 60 percent of Fortune 500 companies are incorporated in Delaware, which gives them access to the state and federal courts there. Second-lien noteholders owed about $1.6 billion say that the fact that a unit of Energy Future is incorporated in the state isn’t enough to keep the case there.
They want the proceedings moved to Texas, where Energy Future does all its business, has all its operations and is overseen by state utility and environmental regulators.
The noteholders’ trustee, Wilmington Savings Fund Society FSB, also asked Sontchi for permission to investigate the restructuring deal, which will split Energy Future’s unregulated business off to a group of senior creditors.
The noteholders are part of a group of hedge funds and banks that hold lower-ranked debt issued by Energy Future’s deregulated unit. Under the power producer’s bankruptcy-exit proposal, they stand to recover less than $350 million of the $7.7 billion they are owed, according to court filings.
Allan Koenig, a spokesman for Energy Future, said the case was filed in Delaware because the restructuring plan doesn’t involve operations.
“The major issues in our restructuring involve our financial structure, rather than our high-performing operations or other constituents based in Texas such as our employees, customers or others,” Koenig said in an e-mail.
Salerno said that in large bankruptcies, judges don’t give a lot of weight to whether a court is conveniently located. Big companies like Energy Future and their creditors employ experienced attorneys and financial advisers who travel often, he said.
The U.S. Bankruptcy Code gives judge wide latitude to decide whether to move a case. While courts in Delaware and New York dominate large corporate filings, in recent years Delaware has been more willing than in the past to grant change-of-venue motions.
That’s why when Salerno filed a bankruptcy case on behalf of the National Hockey League’s Phoenix Coyotes, he chose Arizona. The Phoenix suburb of Glendale, where the team played its games, would have fought to have the case heard in the state, Salerno said.
“I suspected there was a good chance the case would get moved,” he said.
The case is Energy Future Holdings Corp., 14-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).