Energy Future’s Pre-Bankruptcy Talks Continue as Lender Leaves
Creditors of Energy Future Holdings Corp., taken private in the biggest leveraged buyout on record, will keep negotiating on a restructuring plan as at least one group aims to leave the confidential talks, according to people with knowledge of the matter.
Lenders including a group of first-lien holders in the deregulated Texas Competitive unit planned to extend for another week a non-disclosure agreement that expired yesterday as creditors seek to reach terms on a bankruptcy filing that may come this month, said the people, who asked not to be named because the process is private.
Holders of $1.5 billion of bonds in the regulated Energy Future Intermediate unit of the former TXU Corp. indicated they wouldn’t extend their confidentiality contract, which allows investors to access private information about Energy Future and their debt positions to facilitate negotiations. The non-public company information must be disclosed in a regulatory filing after any group exits.
“It seems like the Energy Future Intermediate unsecureds are holding out for a lot more,” Andy DeVries, an analyst at debt-researcher CreditSights Inc., said in a telephone interview. “The other guys want a quick in and out so they can keep all that equity for themselves.”
Creditors are divided over how much of Energy Future’s $43.6 billion in debt will be extinguished, and how lenders will carve up ownership of the Texas power company, the people said. Energy Future is due to make about $270 million in interest payments Nov. 1 -- cash more senior creditors want the company to retain by filing for bankruptcy.
Texas’s largest electricity provider has struggled to reduce debt since it was taken over in a $48 billion deal in 2007 led by KKR & Co. (KKR), TPG Capital and Goldman Sachs Capital Partners. The leveraged buyout left Energy Future with more than $40 billion in debt in an unsuccessful bet natural gas prices would rise.
Adam McGill, a spokesman at Dallas-based Energy Future, declined to comment on the status of negotiations.
Texas Competitive’s $1.83 billion of 10.25 percent senior unsecured notes due November 2015, which pay interest on Nov. 1, traded at 3.13 cents on the dollar as of Oct. 11, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Those securities traded as high as 31 cents on Jan. 4.
Bond markets were closed yesterday in the U.S. for the Columbus Day holiday.
Energy Future is close to obtaining a debtor-in-possession loan of more than $3 billion in preparation for bankruptcy, Bloomberg News reported last week, citing people with knowledge of the situation.
Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley are the key lenders vying to provide parts of the financing. Texas Competitive’s first-lien creditors have been invited to participate.
The size of the loan, which has fluctuated over the past few weeks, is now likely to be about $3.5 billion, the people said. Debtor-in-possession financing is funding arranged by a company going through the Chapter 11 bankruptcy process, which typically has priority over existing debt, equity and other claims. Such a large DIP may help reassure vendors, customers, trading counterparties and regulators the company can meet its obligations.
Energy Future said in April that creditors had rejected a prepackaged bankruptcy plan to restructure $32 billion in debt held by its competitive power unit. The company said in August that it “engaged in additional discussions” with a broader group of lenders and continues to evaluate restructuring options including filing for Chapter 11 bankruptcy for some or all of the company, excluding power-line unit Oncor Electric Delivery Co.
Oncor, the regulated and profitable power transmission and distribution business, is protected from any restructuring, according to corporate filings and Moody’s Investors Service.