* Aurelius says unit's directors shortchanged creditors
* Company once known as TXU went private in $45 bln LBO
* Energy Future has warned of bankruptcy risk
* Aurelius, Energy Future decline to comment
By Jonathan Stempel
March 20 Energy Future Holdings Corp, the power
company that went private in a record $45 billion buyout but
last month said it could go bankrupt, is facing a new headache
as a unit's creditors have filed a $725 million lawsuit to
recover unpaid interest.
Affiliates of the hedge fund Aurelius Capital Management LP
sued seven current and former Energy Future Competitive Holdings
Ltd (EFCH) directors, saying they improperly let the parent once
known as TXU Corp be repaid billions of dollars of fraudulent
intra-company loans without ensuring full payment to creditors.
Aurelius accused Energy Future Chief Executive John Young
and the other directors of showing a "demonstrated indifference"
to creditors stemming in part from conflicts of interest, and
said these directors should pay the interest owed.
Energy Future spokesman Allan Koenig declined to comment. A
spokeswoman for Aurelius declined to comment. Aurelius is also
suing Argentina, and challenging natural gas company Chesapeake
Energy Corp, in litigation over debt payments.
Tuesday's lawsuit filed in Dallas federal court adds to
problems stemming from the 2007 buyout of TXU by KKR & Co
, TPG Capital Management and Goldman Sachs Group
Inc's private equity arm.
The Dallas-based company is Texas' largest power generator,
but has been pummeled by falling natural gas prices,
which are down nearly 50 percent since the buyout was announced.
Falling natural gas prices put downward pressure on the
electricity prices that power producers can charge.
In a Feb. 19 regulatory filing, Energy Future said it lost
$3.36 billion in 2012 and ended that year with $37.8 billion of
long-term debt and $61 billion of contractual cash obligations.
It also said it could face "bankruptcy, liquidation or
insolvency" if its lenders and noteholders were to demand
immediate full repayment.
Warren Buffett's Berkshire Hathaway Inc
has already written off much of its $2 billion investment in the
company's bonds. In February 2012, the billionaire investor
called that investment "a major unforced error."
The case concerns "upstream" loans that Aurelius said were
made to Energy Future by its Texas Competitive Electric Holdings
Co unit, after TCEH had entered a $24.5 billion credit agreement
with several hundred lenders to help finance the TXU buyout.
Aurelius said most of these loans were made or extended and
much of the interest was accrued after January 2011, when it
became a creditor owning both loans issued under the credit
agreement and TCEH bonds that EFCH had guaranteed.
The New York-based hedge fund called the upstream loans
"classic fraudulent transfers" and "a continuing fraud" because
the terms did not reflect energy market stresses or Energy
Future's "untenable" capital structure.
It said Energy Future repaid the loans in January after
repeated complaints by creditors, but that the interest paid was
more than $725 million below what it should have been.
Aurelius said this contributed to the "insolvency" of both
TCEH and EFCH, but that the EFCH board chose not to fix this.
It said this was in part because each member was conflicted
by having a stake in Energy Future, and also being an officer or
director in all three entities: Energy Future, TCEH and EFCH.
"The defendants showed a demonstrated indifference to their
duty to protect the interests of EFCH and its creditors," and
authorized the upstream loans "with the intent to harm EFCH and
its creditors," the complaint said.
Other individual defendants in the case are Arcilia Acosta,
chief executive of Dallas-based construction firm Carcon
Industries; former KKR mezzanine fund manager Frederick Goltz;
Energy Future Chief Financial Officer Paul Keglevic; Goldman
managing director Scott Lebovitz; TPG partner Michael
MacDougall, and KKR partner Jonathan Smidt.
Last month, a person familiar with the matter said Energy
Future had hired Blackstone Group LP and the law firm
Kirkland & Ellis to advise on its debt load.
Energy Future's unregulated merchant power unit Luminant
owns more than 15,000 megawatts of nuclear, coal and gas-fired
power plants. Its TXU Energy retail unit is unregulated, and its
Oncor power delivery unit is regulated.
In Wednesday afternoon trading, Energy Future's 6.55 percent
senior debt maturing in 2034 was down 1.8 cents on the dollar to
65.5 cents, yielding 10.66 percent, according to bond pricing
The case is Aurelius Capital Master Ltd et al v. Acosta et
al, U.S. District Court, Northern District of Texas, No.