WILMINGTON, Del, June 30 Creditors of bankrupt Energy Future Holdings, Texas' biggest power company, urged a judge to slow its Chapter 11 case and warned if a key refinancing proposal was approved it might block better deals from being considered.
In the past week, the company's majority stake in a powerlines business known as Oncor has sparked a flurry of activity comparable to a merger-type bidding war as creditors scramble to get their hands on the unit's steady cash flow.
The company wants Judge Christopher Sontchi to allow its EFIH unit, which owns Oncor, to borrow around $2 billion to fund a settlement that will redeem high-yield debt, saving $11 million a month in interest payments. The loan is backed by the company's unsecured bondholders.
Creditors not involved in financing the DIP, or debtor-in-possession, loan have called it "unprecedented" because it will convert into a stake of about 60 percent of Energy Future when the company exits bankruptcy.
The potential to gain control over the power company has sparked competing DIP loan proposals, including one with $1.6 billion of backing by NextEra Energy Inc, a Florida company that also has a large Texas presence.
"This is a hot auction," said Thomas Mayer, an attorney who represents creditors who have teamed up with NextEra. "Unless you approve the settlement and the DIP, then it's game over."
Mayer is with the Kramer Levin Naftalis & Frankel law firm.
Objectors to the loan and settlement said it will lock the company into a deal that will mainly benefit the bondholders backing the loan because it vastly undervalues Energy Future and its crown jewel, the stake in Oncor.
"For those who can participate, this is unquestionably a sweetheart deal," said James Peck, a lawyer for the official committee of unsecured creditors.
"This is a highly unusual financing," said Peck, a former U.S. Bankruptcy judge in Manhattan now with the Morrison & Foerster law firm. "Please slow down the process."
The hearing regarding the loan is expected to run through Tuesday.
Energy Future filed for bankruptcy in April, after years of lower-than-forecast power prices and burdened by more than $40 billion in debt. Much of that debt was taken on in the 2007 record leveraged buyout of the former TXU Corp, led by KKR & Co , TPG Capital Management and the private equity arm of Goldman Sachs.
Separately, the company is planning to spin off to senior creditors its unregulated power generation unit known as Luminant and its TXU Energy retail utility. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Bernard Orr)