Energy Future has $11.8 billion to fund operations, challenges bondholders
HOUSTON (Reuters) - Texas-based power company Energy Future Holdings has $11.8 billion in debtor-in-possession (DIP) loans to back operations through the massive Chapter 11 bankruptcy that it filed for on Tuesday.
Subject to bankruptcy court approval, the multibillion-dollar financing ranks as the largest privately funded DIP financing ever.
Getting the pre-negotiated restructuring deal to the finish line is by no means assured, however. A proposed tender offer to secured bondholders at Energy Future Intermediate Holdings (EFIH), which owns most of the company's regulated transmission business Oncor, looms as the next bankruptcy hurdle.
The company has threatened to bring litigation against recalcitrant bondholders, which could rattle the restructuring plan that the company has struck. Energy Future has more than $40 billion in debt, it said in its filing.
Before entering bankruptcy, Energy Future reached a last minute restructuring deal with several large creditor factions including a lender group representing 41 percent of those senior debt claims, handing over the company's unregulated generation and retail power assets to lenders in a tax-free transaction.
Ownership of distributor Oncor would be turned over to unsecured bondholders at Energy Future and EFIH.
To back operations under Chapter 11 and buy time to rally creditors on their side, the company is taking out $7.3 billion of DIP loans at EFIH and a $4.475 billion DIP package at Texas Competitive Electric Holdings (TCEH), the company's unregulated merchant generation unit.
EFIH is preparing to use proceeds from the $5.4 billion first-lien tranche of the $7.3 billion DIP to fund a tender offer for EFIH first lien notes at 105 to settle "make-whole" claims asserted by bondholders, according to court filings.
"Make-whole" payments are made to compensate bondholders for forgoing the present value of their coupons resulting from being refinanced before the bond's maturity.
The first-lien EFIH bonds are currently trading above the tender price at 106. If bondholders choose not to tender, EFIH would then litigate the "make-whole" claims.
A $1.9 billion second-lien EFIH DIP will also be raised to refinance existing EFIH second lien notes and 50 percent of those related "make-whole" claims. A separate deal has been struck with Fidelity, which ranks among the largest EFIH second lien bondholders, in which the investment firm would not only refinance their notes with 50 percent recovery on the "make-whole" claim but also a receive $11.25 million cash payment.
In lieu of receiving the make-whole claim in cash, Fidelity can exchange up to $500 million of its second-lien bond and make-whole claims for EFIH first-lien DIP debt.
Deutsche Bank is leading the first lien EFIH DIP facilities with Citigroup, Bank of America Merrill Lynch, Morgan Stanley, Barclays, Royal Bank of Canada and Union Bank rounding out the lending consortium.
LOAN ECLIPSED ONLY BY GENERAL MOTORS
The first-lien EFIH DIP loan, which matures in two years, will pay lenders a Libor plus 325 basis point spread, with a 1 percent minimum Libor floor, according to court filings.
The $4.475 billion TCEH DIP consists of a $1.95 billion line of credit, a $1.425 billion term loan, and a $1.1 billion delayed-draw term loan.
These loans are slated to fund Energy Future's power merchant operations and letters of credit. In addition, the delayed draw tranche will enable the company to post a collateral bond to the Railroad Commission of Texas to meet mining reclamation bond obligations.
TCEH DIP term lenders will receive a Libor plus 275 basis spread for providing the 24-month loans, while the credit line will pay a Libor plus 250 basis point spread, all pricing of which are subject to a 0.75 percent Libor minimum, according to court documents.
The combined Energy Future financing is bigger than the $8.04 billion DIP for then privately owned petrochemical manufacturer LyondellBasell in early 2009. It is eclipsed only by General Motors $33 billion DIP loan, which was advanced by the United States Treasury, in June 2009. The size of Energy Future's loan matches the scale and complexity of Energy Future's business.
While Energy Future aims to exit bankruptcy in 11 months, the company can extend its two-year DIP financing by another six months, if the need arises. The bankruptcy was on par with those of Pacific Gas & Electric Co and Enron in 2001 but trailed behind the $691 billion in assets the investment bank Lehman Brothers had when it blew up in 2008, according to Bankruptcydata.com.