Energy Future’s Speedy Bankruptcy Hinges on Oncor Ruling

Energy Future Holdings Corp.’s plan to speed through a $42 billion bankruptcy reorganization hinges on whether a judge today will let it auction a prize asset on its own terms now, or bow to lenders who want a later sale.

The Dallas-based power company was beset last month by opposition to its proposed rules for the tax-free sale of electricity distributor Oncor before it had a creditor-backed refinancing plan lined up.

Chief Financial Officer Paul Keglevic defended his sale plans at a four-day hearing last month in Wilmington, Delaware. Lenders said have said potential buyers would lower their bids out of uncertainty whether they could close the sale on the terms struck now.

U.S. Bankruptcy Judge Christopher Sontchi ditched an Oct. 23 deadline for Oncor bids to give creditors more time to interrogate directors about the auction. Today he’s to rule on whether the sale can follow Energy Future’s timetable and tax structure.

“This judge has shown a willingness to seriously consider objections to proposed actions of the debtor,” said Chip Bowles, a bankruptcy lawyer at Bingham Greenebaum Doll LLP, who isn’t involved in the case. “He could easily require major changes.”

11 Months

The Oncor fight is emblematic of Energy Future’s refinancing effort. After tumbling into bankruptcy in April with a target of exiting in 11 months, the company has already been forced to scrap part of a proposed plan to pay creditors, and the effort to auction off Oncor is behind schedule.

While initial offers will be secret, Energy Future has said about 10 parties signed confidentiality agreements to see relevant documents. NextEra Energy Inc., CenterPoint Energy Inc., Warren Buffett’s Berkshire Hathaway Inc. and Hunt Consolidated Inc. are among them, said people familiar with the bidding who asked not to be named as the process is private.

Keglevic said at the hearing that he valued a mid-year Oncor bid by NextEra at around $18 billion. Auction prices now could also be high if potential buyers save on taxes or aim to build their electricity business in Texas, he told the judge.

“None of us assumed we could get the price in the multiple that we ended up getting from NextEra,” Keglevic said.

Lender Outcry

Before Juno Beach, Florida-based NextEra came forward, Energy Future was set to lock in a payment plan that left some creditors out in the cold. Outcry from eight lender groups made it ditch part of that plan and invite bids for profitable Oncor, 80 percent owned by the company’s regulated business.

Energy Future proposed two rounds of bidding, which were to begin as soon as this month, followed by a period of consultation to determine the best offer.

Objectors said that far from being a simply procedural matter, the rules would lock in a payment plan that shuts them out, as Keglevic indicated most of the auction proceeds could be used to pay the Oncor business’s creditors.

Ed Weisfelner, a lawyer for lenders fighting the auction rules, argued for a taxable deal in six months or a year, once Energy Future has devised a more popular plan to exit bankruptcy. That way, bidders needn’t worry that tax authorities would veto the deal, or fear claims from disgruntled creditors, he said.

“If NextEra buys Oncor today or in the conclusion of this sale process, do you suppose NextEra thinks that Oncor will be worth more or less a year from now?” he asked Keglevic.

Keglevic’s lawyer objected to the question and the finance chief didn’t answer.

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

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