TRLPC: EFIH 2nd-lien bondholders vie for control via new DIP

NEW YORK Thu May 29, 2014 2:01pm EDT

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NEW YORK May 29 (Reuters) - A lender call has been scheduled on Thursday to market an alternative $1.9 billion second-lien debtor-in-possession (DIP) financing for Energy Future Intermediate Holdings (EFIH), a subsidiary that owns the regulated business for bankrupt power company Energy Future Holdings, sources said.

A group of second-lien EFIH bondholders is supporting this financing to compete against a $1.9 billion second-lien DIP proposal initially advanced by a group of unsecured EFIH bondholders at the outset of Energy Future's Chapter 11 case.

Whichever parties prevail and control the junior DIP financing could end up owning most of Energy Future.

The newly proposed second-lien DIP pays a 7 percent coupon and comes due in two years. At maturity, the DIP converts into 62 percent ownership of post-bankruptcy Energy Future.

JP Morgan is acting as agent for the alternative second-lien EFIH bondholder DIP.

Second-lien participation

The DIP proceeds would pay off principal and accrued interest for existing EFIH second-lien noteholders and fund settlement payments to those second-lien bondholders participating in a tender offer sponsored by the company.

Second-lien bondholders rejecting the tender offer will be first in line to participate in the DIP. Those tendering will be paid off, and relinquish claims against the company.

Bondholders that reject the tender effectively swap their existing claims into the bankruptcy financing, which eventually allows them to wind up owning most of Energy Future upon its emergence from Chapter 11.

On May 9, EFIH announced a cash tender offer that pays a bond premium to settle "make-whole" payments that second-lien bondholders claim that they are owed.

"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.

EFIH has stated that it would otherwise refinance hold-out bondholders at par value without any bond premiums after the tender offer expires and pursue litigation to eliminate any "make-whole" claim owed to second-lien bondholders.

Tendering second-lien bondholders would not get any piece of the initial second-lien DIP, as the bankruptcy financing cashes them out.

Non-settling bondholders would continue to fight for their "make-whole" payment.

Any remaining DIP amounts not allocated to the dissenting bondholders would wind up in the hands of the group of second-lien EFIH bondholders proposing the loan. Finally, "a small piece" of the second-lien DIP would be available for the broader loan market, according to an investor involved in the deal.

Other DIPs

The original second-lien DIP, backed by a consortium of unsecured bondholders including Avenue Capital, GSO Capital and York Capital, bears an 8 percent cash coupon and also matures in two years. The DIP converts into 64 percent equity into reorganized Energy Future.

Cortland Capital Market Services is the agent on the original second-lien DIP.

A court hearing to consider the various EFIH DIP proposals, including both first- and second-lien tranches, is scheduled for June 5.

The latest second-lien DIP is the fourth bankruptcy financing proposal made available to the company.

Energy Future held a lender call on Thursday morning for the first-lien EFIH DIP financing, which is led by Deutsche Bank.

Energy Future's $1.425 billion bankruptcy term loan for Texas Competitive Electric Holdings, the company's unregulated merchant power business, has already been syndicated.

That deal was led by Citigroup. (Editing By Michelle Sierra, Jon Methven)

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