| WILMINGTON, Del
WILMINGTON, Del May 1 Hearings kicked off one
of the biggest-ever U.S. bankruptcies on Thursday with creditors
of Energy Future Holdings Corp, the largest power company in
Texas, airing grievances over timing, value and how to
administer the case.
Energy Future, created in the 2007 buyout of TXU Corp, filed
for Chapter 11 bankruptcy on Tuesday after struggling more than
a year to work out a deal with its creditors. The company's
lawyer, Edward Sassower of Kirkland & Ellis, told the court its
proposal was "wildly complicated," and many creditors began to
explore lines of attack.
The hearing in the U.S. Bankruptcy Court in Wilmington,
Delaware, drew scores of top bankruptcy lawyers from around the
country on behalf of sophisticated investment funds that are
owed nearly $50 billion.
The hearing spilled into two overflow courtrooms and seemed
unlikely to finish before Friday.
The company proposed splitting from the parent its power
plant and retail electricity business, and turning the holding
company that owns those assets over to lenders. In a separate
deal, a group of unsecured creditors would end up controlling
Texas's largest network of power lines.
The proposed deal would leave lower-ranking creditors of
Texas Competitive Electric Holdings Co, or TCEH, the holding
company for Luminant and TXU Retail, with less than 3 percent of
what they are owed. They raised the first objections.
"They don't use the term wipe-out, but wipe-out is what they
intend," said Ed Weisfelner, a Brown Rudnick attorney who
represents a group of lower-ranking secured creditors that is
owed $1.6 billion.
Creditors lodged a highly unusual objection to
consolidating the cases, which forced the company's chief
financial officer, Paul Keglevic, to the stand before Judge
Christopher Sontchi overruled the objection.
Weisfelner said Energy Future is trying to undervalue the
TXU Retail and Luminant businesses to steer those assets into
the hands of investment firms that hold the $24.4 billion in
loans. He told Sontchi he feared he would not get his day in
court to prove his clients deserved to be paid.
An attorney who represented the largest group of creditors
which would end up owning the those businesses tried to assure
the judge his group would work with Weisfelner's, and talks
"This is not the end of the story. You have to start
somewhere," said Alan Kornberg of Paul, Weiss, Rifkind, Wharton
& Garrison. He said he expected support for the deal among the
class of creditors he represents to grow from the current 41
The second part of the agreements would swap ownership of
the Oncor business, which operates the largest network of Texas
power lines, to two groups of unsecured creditors. The company
has proposed borrowing $7.3 billion to pay off higher-ranking
creditors of the Oncor business.
Some of those higher-ranking creditors oppose the deal
because it does not provide them with an added payment for
retiring their debt prior to maturity. The company said it will
litigate with creditors that hold out for that added money,
known as a "make-whole payment."
Those higher-ranking creditors are also challenging the
company's attempts to obtain this financing, arguing that the
added payment needs to be "adequately protected" before the
financing can be in place.
Judge Sontchi issued an interim order allowing the company
to enter a commitment letter for that financing and giving it
the authority to pay lenders just under $100 million in fees.
The judge set a final hearing on the loan for June 5.
Energy Future and its affiliates owe $49.7 billion, mainly
to hedge funds and investment firms. Its $36.4 billion in assets
make one of the biggest non-financial Chapter 11 filings ever.
The company was the target of a record $45 billion buyout in
2007, when it was known as TXU Corp, in a deal led by KKR & Co
LP, TPG Capital Management LP and the private
equity unit of Goldman Sachs Group Inc.
The buyout was a leveraged bet on the price of natural gas,
which in turn essentially sets the price of electricity.
But natural gas prices have plummeted since the buyout.
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