Energy Future Bankruptcy Pits Marathon Against Apollo

Energy Future Holdings Corp.’s bankruptcy has already spurred disputes, pitting Bruce Richards’s Marathon Asset Management LP against hedge fund heavyweights such as billionaire Marc Lasry’s Avenue Capital Group and Apollo Global Management LLC.

Marathon, an unsecured lender to Energy Future, joined forces with Appaloosa Management LP and Arrowgrass Capital Partners LLP to contest a proposal that would restructure the insolvent power producer and leave them with pennies on the dollar for their claims, according to documents in the Chapter 11 case.

New York-based Marathon is part of a group of junior bondholders seeking to derail a plan that they call the result of conflicts of interest and an attempt to erase “billions in legitimate creditor claims,” according to court papers filed April 29 in Wilmington, Delaware.

To reorganize, Dallas-based Energy Future needs to resolve claims on 75 bonds and loans held by at least 600 creditors, according to data compiled by Bloomberg.

“Controlling owners and managers have promulgated a series of projections that appear purposefully designed to curry favor with their senior lenders and line their own pockets,” the trustee representing the junior lenders said in the filing. The proposed deal “would be to the direct detriment of the second liens and other junior creditors largely excluded from restructuring discussions to date,” it said.

Noteholder Recovery

The hedge funds and banks that hold lower-ranked debt issued by Energy Future’s deregulated unit are owed $7.7 billion and would recover less than $350 million under the power producer’s bankruptcy-exit proposal, according to the filing.

On the other hand, secured lenders including Apollo, Oaktree Capital Group LLC, Centerbridge Capital Partners LP and Fortress Investment Group LLC support the reorganization plan. They stand to become the owners of the company’s deregulated unit and will collect the proceeds of a future debt offering by the company, according to court filings.

Energy Future was taken private in 2007 by KKR & Co., TPG Capital and Goldman Sachs Capital Partners in the largest-ever leveraged buyout, anticipating natural-gas prices would rise. Instead those prices, which set the cost of electricity in the Texas market, have fallen 65 percent since July 2008.

Stake Erased

KKR, TPG and Goldman Sachs’s equity stake will be almost erased under the bankruptcy plan.

The electricity provider listed $49.7 billion of debt in its Chapter 11 petition. Energy Future said it has the support of “key financial stakeholders” for the proposed reorganization.

Successful implementation of the blueprint would “minimize disruptions” to the company’s business and preserve value, Chief Financial Officer Paul Keglevic wrote in a bankruptcy filing.

Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., and Todd Fogarty, an Avenue spokesman who works for Kekst & Co., declined to comment. Ryan FitzGibbon, a spokeswoman for Marathon at Prosek Partners, didn’t immediately comment on the restructuring.

The case is In re Energy Future Holdings Corp., 14-bk-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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