Low-ranking Energy Future Holdings Corp. creditors won permission to investigate whether the bankrupt Texas power provider can pay them more than predicted and to look for signs that managers colluded with senior lenders to undervalue the company.
U.S. Bankruptcy Judge Christopher Sontchi approved rules for the probe by unsecured creditors, including groups that rose up early in the case to force the company to abandon a deal to give senior lenders ownership in return for canceling debt.
Questions about the value of the company are “inevitable,” Sontchi said today at a hearing in Wilmington, Delaware. Sontchi dismissed an objection by senior lenders, who argued they should be spared the expense of producing information for the investigation until later.
Information production in a large bankruptcy case may be expensive, “but that’s the way it’s going to be,” he said.
Energy Future, which was taken private in a record leveraged buyout seven years ago, filed for bankruptcy in April after reaching the agreement with senior lenders. The company listed almost $50 billion in debt, making it the biggest energy industry bankruptcy and one of the biggest corporate filings ever.
That deal with senior lenders was scrapped last month after dissident creditors put forth their own proposal, which includes selling control of the Dallas-based company’s profitable Oncor unit to NextEra Energy Inc.
Under the now-discarded plan, junior creditors of Energy Future’s main operating company stood to collect as little as $350 million of the $7.7 billion they are owed.
Sontchi also declined to force the U.S. Trustee to immediately appoint a second unsecured creditors’ committee to represent the main parent company. An indenture trustee for some parent company creditors, American Stock Transfer & Trust Co. LLC, claimed another panel was needed to represent creditors not on the current committee.
Sontchi said it was up to the Office of the U.S. Trustee, an arm of the Justice Department that monitors corporate bankruptcy cases. Sontchi asked the U.S. Trustee to either expand the current committee, appoint a new committee or file a legal brief explaining why neither is necessary.
The case is Energy Future Holdings Corp., 14-bk-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).