Prospects of a Public Oncor Raised by $18 Billion NextEra Rebuff

Updated on
  • Texas has blocked NextEra’s, Hunt group’s bids to buy Oncor
  • Absent a viable merger, Oncor may go public, analysts say

Twice, companies have sought to buy Texas’s biggest electric transmission owner. And twice now, Texas has rebuffed them.

The latest rejection came Thursday when the state Public Utility Commission killed NextEra Energy Inc.’s $18 billion plan to buy Oncor Electric Delivery Co. A group led by Hunt Consolidated Inc. withdrew its own bid last year. Without a viable merger in sight, the future of Oncor -- and the long-awaited end to the bankruptcy of its parent Energy Future Holdings Corp. -- may depend on the utility going public.

“It’s been difficult to please both bondholders and regulators,” said Andrew Bischof, an analyst at Morningstar Inc. “An IPO may be their best option at this point. If Texas regulators aren’t going to be a little more flexible, then an IPO is more likely.”

Figuring out what to do with Oncor is the single biggest hurdle in ending the high-profile bankruptcy of Energy Future. Formed by KKR & Co., TPG Capital and Goldman Sachs Capital Partners as part of the biggest leveraged buyout in history, Energy Future has been working to restructure almost $50 billion in debt since it filed for Chapter 11 in 2014. Warren Buffett famously called his decision to buy about $2 billion in bonds of the company a “big mistake.”

NextEra and Oncor declined to comment. Energy Future didn’t immediately return a request for comment.

Like Enron

“Somebody else could come in and buy Oncor, or they could go public like Portland General did under Enron,” said Paul Patterson, a utility analyst at Glenrock Associates. “We’ve seen two rejections now, and it comes down to how much can bondholders recover and what regulators think is good for the utility.”

Last year, senior lenders took over Energy Future’s money-losing, electric-generating business to settle the debts they held. The only significant asset still owned by the company is its controlling stake in Oncor, which will be used to pay the remaining creditors.

The two rejections by Texas show any new buyer faces an uphill battle. “How much you’re willing to pay for -- it depends on what regulators let you do with it,” Patterson said. “Another buyer would need to do a better job of managing those interests than NextEra or the Hunts.”

Katie Bays, a Washington-based energy analyst at Height Securities, warned that it’s too soon to talk about a public listing because Energy Future’s creditors would still prefer a takeover. While NextEra’s rejection probably scared away some potential buyers, a group of acquirers may yet emerge.

“The challenge is what does an acquirer look like that the Texas PUC is comfortable with,” Bays said.

Energy Future is due back in federal court in Wilmington, Delaware, on Monday to update U.S. Bankruptcy Judge Christopher Sontchi, who has overseen the case since it was filed.

— With assistance by Steven Church

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