WILMINGTON, Del., June 27 (Reuters) - A powerful Texas state senator warned against a takeover by hedge funds of the power distribution unit of bankrupt Energy Future Holdings and said the state would prefer an owner with a long-term view.
Senator Troy Fraser told Reuters on Friday that Texas prefers that the new owner of the power distribution unit, Oncor, invest cash in the business, and would be concerned about any deal that increases debt levels.
"My concern is New York hedge funds have a short-term approach," he said by phone. "The view of Texas is obviously we're interested in someone looking at the long-term strategy or solution, rather than someone who is trying to buy it and flip it."
On Monday, a U.S. Bankruptcy judge in Wilmington, Delaware, where Energy Future filed for bankruptcy, will consider competing proposals for refinancing the debt of the Energy Future unit that owns Oncor; those proposals could determine who controls Energy Future after its bankruptcy.
Fraser is chairman of the Texas Senate Committee on Natural Resources. He opposed the 2007 leveraged buyout that loaded Energy Future, then known as TXU Corp, with much of the $41 billion in debt it carried into bankruptcy in April.
A spokesman for Energy Future, the biggest power company in Texas, did not immediately respond to a request for comment.
Energy Future has said the bankruptcy is strictly a financial restructuring that will not affect consumers.
Energy Future has proposed splitting the company's ownership of the regulated Oncor unit from its unregulated Luminant power plants unit and TXU Energy retail utility.
Under Energy Future's proposed restructuring, a group of hedge funds that hold unsecured bonds will back a loan of around $2 billion to refinance some of the debt of Oncor's parent, Energy Future Intermediate Holding, or EFIH.
The loan would then convert into ownership of about 60 percent of Energy Future when it emerges from bankruptcy with EFIH and its stake in Oncor as its crown jewel.
Oncor is not bankrupt, and Fraser helped lead the fight to "ring fence," or isolate, the operation from the finances of the rest of Energy Future. He said the state has veto power over any deal that transfers Oncor ownership.
Since Energy Future filed for bankruptcy, two competing groups with hedge fund involvement have come forward with their own converting loan proposals that would transfer ownership to them after bankruptcy. One group has teamed up with NextEra Energy Inc, which will contribute $1.6 billion to its $2.3 billion loan package.
NextEra owns Florida Power & Light and is the biggest generator of wind power in Texas.
U.S. Bankruptcy Judge Christopher Sontchi in will consider the three loan proposals at a hearing on Monday.
The case is In re: Energy Future Holdings Corp, U.S. Bankruptcy Court, District of Delaware, No. 14-10979. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Terry Wade and Leslie Adler)