Energy Future Board Said to Vote for Bankruptcy With Deal

Energy Future Holdings Corp.’s board voted to file for bankruptcy protection after reaching a deal with the Texas power producer’s key creditors on a plan that may help to speed a reorganization, according to people with knowledge of the talks.

Energy Future has enough support from lenders to file a pre-arranged Chapter 11 plan as soon as this morning, said the people, who asked not to be identified because the discussions are private. The deal is structured to enable the company to avoid triggering a tax liability that could exceed $7 billion, they said.

The company formerly known as TXU Corp., which some of Wall Street’s biggest titans took private in 2007 in the largest leveraged buyout in history, has been racing to complete a deal before May 1, when it would be considered in default. Having a blueprint in place limits the chaos of a free-for-all filing and reduces the amount of time it takes to restructure the company’s $45 billion of debt.

Adam McGill, a spokesman for Dallas-based Energy Future, declined to comment on the company’s plans.

The bankruptcy plan is supported by senior lenders to the company’s deregulated unit, along with Fidelity Investments and a group of bondholders at the regulated division, the people said. The power producer is still negotiating with other creditors, they said.

Gas Bet

Fidelity, which manages $1.9 trillion of assets and owns debt in at least seven parts of the company, had balked in earlier discussions, which restarted after attempts to agree on a reorganization plan with creditors in October failed.

The power producer was taken private by KKR & Co., TPG Capital and Goldman Sachs Group Inc.’s private-equity arm in 2007 for $48 billion.

The acquisition at the peak of the buyout boom in 2007 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.

In earlier versions of the proposed bankruptcy plan, the company’s private-equity owners were to recoup just 1 percent of the original investment, people with knowledge of the negotiations said at the start of the month.

The deal reached yesterday included senior lenders to the deregulated unit who walked away from negotiations last year -- led by Apollo Global Management LLC, Oaktree Capital Group LLC and Centerbridge Capital Partners LP, the people with knowledge of the talks said.

The central issue being negotiated this month was how to avoid the big tax bill, the people said. Apollo, Centerbridge and Oaktree had pushed a plan that would separate the deregulated unit in a way that would give the creditors-turned-owners favorable tax treatment and generate a bill at the Energy Future parent company that the bankrupt estate wouldn’t be able to pay, the people familiar with the earlier discussions said.

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