Even Winners in Energy Future Bankruptcy Can’t Celebrate

Even the winners in the bankruptcy of Energy Future Holdings Corp. have little to celebrate after months of wrangling resulted in compromises for everyone.

To get a deal done, everyone had to give up something, people with knowledge of the negotiations said.

Creditors Apollo Global Management LLC, Oaktree Capital Group LLC, Centerbridge Capital Partners LP and Angelo Gordon & Co. may be the least unhappy. While they’ll exchange $23 billion in debt to own the company’s unregulated business, they agreed to relinquish a multibillion-dollar tax advantage, according to a preliminary agreement filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.

Owners KKR & Co., TPG Capital and Goldman Sachs Capital Partners, which took the former TXU Corp. private in the largest leveraged buyout ever seven years ago, had asked for 15 percent of the restructured company, according to documents released a year ago. They’ll go home with less than 1 percent.

Stakeholders hurried to craft a compromise before May 1, when Energy Future, Texas’s biggest power producer, would be in default. Having an agreement in place limits the likelihood of a free-for-all and reduces the amount of time and money it takes to restructure the company’s almost $50 billion of debt. The company said it has ambitions to exit bankruptcy in 11 months.

Biggest Buyout

The biggest buyout, at $48 billion, became the biggest energy-company bust. Henry Kravis’s KKR, David Bonderman’s TPG and Goldman Sachs together chipped in $8.3 billion of their own money and the money of their investors, with the rest borrowed. That bet left Energy Future struggling to cut debt when the financial crisis, coupled with booming shale production, sent natural gas and electricity prices spiraling down since 2008.

Tom Johnson, a spokesman for Energy Future’s owners, declined to comment yesterday on the filing.

Apollo, Oaktree, Centerbridge and Angelo Gordon -- the future owners of the deregulated Texas Competitive Electric Holdings -- will issue debt to pay themselves a dividend as part of the restructuring agreement.

One of many fights with creditors before yesterday’s bankruptcy filing was over splitting the company into regulated and deregulated entities, as Energy Future now plans to do. The filing says an accord with senior lenders to avoid triggering tax liability needs tax authorities’ approval.

About $3.1 billion of debt would be canceled at the holding companies that own the regulated utility Oncor.

Energy Future has more than $11 billion of loans to fund itself through bankruptcy, it said yesterday.

Regulated Unit

The company’s assets of $36.4 billion and liabilities of $49.7 billion rank its bankruptcy with Enron Corp.’s $48.9 billion collapse in 2001.

Some bondholders at the regulated unit known as Energy Future Intermediate Holding agreed to turn their stakes into a $5.4 billion “super-priority” bankruptcy loan, payable before other so-called debtor-in-possession loans, according to the pact. Pacific Investment Management Co., Fidelity Investments and BlackRock Inc. are three of the biggest holders of those bonds, according to data compiled by Bloomberg.

Investors holding the unit’s unsecured debt, known as payment-in-kind notes, can exchange them for a lower-priority $1.9 billion DIP paying 8 percent interest annually, until it converts into 64 percent of the equity in the reorganized Energy Future, according to the filing. PIK investors include Avenue Capital Group, York Capital Management, GSO Capital Partners, Third Avenue Management and Peter Schoenfeld Asset Management.

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

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