Energy Future Investors Float Oncor Takeover Via NextEra

A group of Energy Future Holdings Corp. investors offered a restructuring plan for the Texas power provider that would allow junior creditors to recover more money than under the company’s own proposal and leave NextEra Energy Inc. in control of its more profitable business.

NextEra and investors in the unit that controls Energy Future’s Oncor transmission business floated the plan in a June 18 letter to Chief Financial Officer Paul Keglevic filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.

The new reorganization, together with a $2.3 billion loan, would follow the company’s current plan for a tax-free spinoff of assets while giving unsecured lenders more value, the group said. Within 30 days of the loan’s issuance, NextEra would seek a merger with the unit that controls Oncor in an all-stock transaction.

A rival proposal to reshape the company’s finances might delay Energy Future’s plan to exit court within 11 months, and might alter many creditors’ anticipated payments. In the bankruptcy of Lehman Brothers Holdings Inc., the bank resolved months of fights over competing reorganization schemes by promising one group a bigger payout at the expense of another.

Energy Future, which has rejected the NextEra group’s offer, showed a failure of business judgment when it chose a higher-cost loan over an “economically more favorable and recovery-maximizing proposal,” according to the filing.

Allan Koenig, a spokesman for Dallas-based Energy Future, declined to comment on the investors’ proposals.

Plan Faulted

In a separate filing today, the Energy Future investors faulted management’s borrowing plan, saying Fidelity Investments would unfairly benefit after negotiating a much better deal than they were given, in exchange for backing the company’s restructuring proposal.

“This disparate treatment ­- offering substantially more favorable settlement terms to a few preferred parties than to all other second lien noteholders ­- violates the Bankruptcy Code’s prohibition of discrimination among similarly situated creditors,” the group said.

Energy Future’s $1.9 billion loan proposal, which it says is a crucial part of a larger borrowing to refinance costly debt from a 2007 buyout, is up for court approval next week. At least two other creditor groups today faulted the company’s loan plan.

Loan’s Effect

The loan, which pays Fidelity Investments an $11.5 million fee plus other special benefits, would give Energy Future no working capital or debt relief and would undervalue the company’s assets by billions of dollars, one group said in a court filing. Senior lenders said the proposal would depart from normal rules by paying junior holders ahead of them.

Energy Future filed for Chapter 11 protection April 29 to restructure $49.7 billion of debt after electricity prices fell along with natural gas prices, cutting profits. The company, taken private in a record $48 billion leveraged buyout in 2007, is trying to exchange costly loans for ones with lower interest.

The lenders, who are fighting for a bigger stake in Energy Future’s most prized asset, asked a judge to refuse to approve the company’s own loan plans at a hearing set for next week, saying they would disclose more details of their plan today.

NextEra, based in Juno Beach, Florida, is the biggest U.S. producer of electricity from wind and sunshine. It would join with the second-lien lenders in gaining a stake in the Oncor business, controlled by Energy Future’s regulated unit.

Fighting Back

The rival plan is the latest in a series of bids for a better deal by creditors who have accused the company of trying to jam through a program devised before the April bankruptcy filing in a pact with management-friendly investors. Until now, lenders claiming unfair treatment have fought back by filing objections in court, usually overruled by the judge, or by mounting lawsuits.

The proposal outlined in the letter to Keglevic would benefit unsecured creditors of both Energy Future’s main holding company and its regulated unit, while paying some of that unit’s investors in full.

At the same time, by giving NextEra a stake in Oncor, it would reduce the regulatory risk of Energy Future’s own bankruptcy plan, the group said. It also would raise the value of profitable Oncor, which isn’t in bankruptcy, more than the agreement struck with other creditors, it said.

“The court will carefully review any proposal that might allow junior creditors to recover more without forcing senior creditors to take less or to bear more risk,” said Erik Gordon, a law professor at the University of Michigan who is following the bankruptcy.

Loan Agent

JPMorgan Chase & Co. would be agent for the loan, according to the letter, which was signed by the group’s lawyer, Thomas Mayer, and Mark Hickson, NextEra’s vice president of strategy and corporate development.

The second-lien lenders originally proposed their loan to Energy Future in May. The company is instead pursuing a loan from a different group of creditors with whom it earlier struck an agreement, after making “modest” changes, the group said.

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

(Updates with criticism of company plan in seventh paragraph.)
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