Energy Future Clears Big Hurdle With Approval of Oncor Saleby
Unsecured creditors get $450 million more, drop opposition
Texas regulators still must sign off on asset sale to NextEra
Energy Future Holdings Corp. won court approval to sell its Oncor electricity distribution business to NextEra Energy Inc., bringing the biggest U.S. power bankruptcy one step closer to a conclusion more than two years after it began.
The approval came after NextEra agreed to increase its offer by $300 million in cash and make other changes to help satisfy Energy Future creditors including Fidelity Management & Research Co. All told, unsecured creditors will get $450 million more, Energy Future lawyer Chad Husnick told U.S. Bankruptcy Judge Christopher Sontchi at a hearing Monday in Delaware.
Under the proposal, NextEra will pay about $4.4 billion in cash and assume debt and asbestos liabilities stemming from the distribution business, the largest power-line company in Texas. The total value of the transaction was about $18.4 billion before NextEra boosted its offer.
“We think it is a lot of good news,” Husnick said in court.
Six of Energy Future’s bonds rose Monday. The unsecured 6.55 percent notes that mature in 2034 climbed about 4.5 cents to 65 cents on the dollar, according to Trace, the bond-price reporting system of the the Financial Industry Regulatory Authority.
Even with the increased payment, the deal is good for NextEra, said John Bartlett, co-manager of a utility portfolio that includes about 1.3 million shares of the company.
“We’re enthusiastic about it,” Bartlett, of W.H. Reaves & Co., said in a phone interview. “I don’t view that as a big price to pay to get greater certainty.”
NextEra shares climbed $1.42, or 1.2 percent, to $124.74 at 4 p.m. in New York. The transaction should close in the first quarter of next year, the company said in a statement.
Energy Future filed for bankruptcy protection in April 2014 with almost $50 billion in debt, much of it from a record leveraged buyout seven years earlier by KKR & Co., TPG Capital and Goldman Sachs Capital Partners. Last month, the court approved a proposal to reorganize the company’s power-generating business and hand it over to senior lenders.
The case isn’t over yet. NextEra and Dallas-based Energy Future must win approval from Texas regulators before the Oncor deal can close. And Sontchi still must approve Energy Future’s plan to distribute the sale proceeds. That got a boost when Fidelity and Contrarian Capital Management LLC dropped their opposition to the NextEra deal.
The new sale terms announced Monday boost payouts to unsecured creditors in two ways. In addition to putting up the additional cash, Juno Beach, Florida-based NextEra cut $150 million from what it will set aside for potential asbestos claims, leaving about $100 million to cover them as necessary.
Under the proposal, NextEra gets a $275 million breakup fee if a last-minute bidder tops its offer or if regulators reject the sale under certain circumstances and Energy Future is forced to reorganize the distribution unit and turn it over to creditors.
After years of shopping Oncor around, there’s little chance another bidder will make a better offer, Husnick said.
NextEra tried to buy the business in 2014, but lost to a coalition of creditors and Hunt Consolidated Inc. When that proposal was rejected by Texas regulators, bidding resumed and NextEra prevailed.
“To say that this thing has been marketed is an understatement,” Husnick told Sontchi. “It is perhaps the most-marketed asset in Chapter 11 history.”
The case is Energy Future Holdings Corp., 14-bk-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).