Energy Future Holdings lining up $9 billion bankruptcy financing

NEW YORK Thu Mar 27, 2014 9:33am EDT

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NEW YORK (Reuters) - Embattled utility Energy Future Holdings TXEFHE.UL is lining up around $9 billion of bankruptcy loans before an imminent bankruptcy filing, sources involved in the matter said on Thursday.

The $9 billion Debtor-In-Possession (DIP) loan is in the final stages of negotiation, the sources said. Credit agreements have yet to be signed, but the deal is expected to be the largest-ever privately funded bankruptcy financing, according to Thomson Reuters LPC data.

Energy Future holdings, formerly known as TXU, was taken private in October 2007 in the largest leveraged buyout ever, and has struggled to manage its debt of more than $40 billion ever since.

The company's bankruptcy financing currently consists of a $4 billion DIP loan at Texas Competitive Electric Holdings (TCEH), the company's unregulated merchant generation unit, and a DIP loan of nearly $5 billion at Energy Future Intermediate Holdings (EFIH), which owns most of Energy Future's regulated business, two sources said.

The final amounts could still change as negotiations among creditors and banks are ongoing, the sources added.

At least six banks, including Citigroup and Morgan Stanley, are lining up to provide the financing, two sources said. sources.

Citigroup and Morgan Stanley declined to comment.

Energy Future spokesperson Allan Koenig said, "We have not finalized or announced any debtor-in-possession as of now."

Proceeds from EFIH's DIP loan are expected to refinance $4 billion of first-lien notes at that subsidiary, finance interest payments for the second-lien bonds in bankruptcy, and provide a cash cushion for bankruptcy administrative expenses, one of the sources said.

The $5 billion DIP loan will not be drawn in full at the outset of the Chapter 11 case, as interest payments on second-lien loans will be made on its normal coupon schedule, subject to bankruptcy court approval of these adequate protection payments, the first source said.

LARGEST PRIVATE DIP

The proposed $9 billion Energy Future financing is bigger than the $8.04 billion DIP for privately-owned petrochemical manufacturer LyondellBasell (LYB.N) in early 2009, LPC data shows.

It is eclipsed only by General Motors (GM.N) $33 billion DIP loan, which was advanced by the United States Treasury in June 2009.

The large bankruptcy financing matches the large scale and complexity of Energy Future's business. Energy Future has been in various restructuring negotiations with creditors for over a year.

The company could now be in for years of expensive court-supervised negotiations with different creditor groups. Secured lenders, led by Apollo Global Management, hold more than $20 billion in debt.

"Energy Future's businesses are likely to be split and transferred to different creditor factions, which would help explain the reasoning behind separate DIPs at the regulated and unregulated businesses," said Andrew Devries, a fixed income utilities analyst at CreditSights.

(Additional reporting by Nick Brown in New York. Editing by Tessa Walsh in London and Michelle Sierra in New York)

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