Aug 13 Junior creditors of Energy Future
Holdings can review company financial records, a judge ruled on
Wednesday, as the bankrupt Texas utility trudges through an
increasingly messy bankruptcy.
Granting a request from second-lien bondholders of Energy
Future's TCEH power generation unit, bankruptcy Judge
Christopher Sontchi endorsed broad discovery procedures at a
hearing in his Delaware courtroom, mostly centered on
transactions that occurred before Energy Future's Chapter 11
filing in April.
The move could herald future litigation in what is already a
tangled case. Wilmington Savings Fund Society, the trustee for
the second-lien group, wants to study Energy Future's collapse
with an eye toward determining if certain transactions can be
unwound due to fraud or other improprieties.
Energy Future, the former TXU Corp, is the product of a
record-breaking $45 billion buyout in 2007 by KKR & Co,
TPG Capital Management and the private equity arm of
Goldman Sachs. It filed for Chapter 11 after years of
lower-than-forecast power prices to restructure more than $40
billion in debt.
Since the buyout, its owners "have materially increased
[Energy Future's] risks through their subsequent actions and
inactions," Wilmington Savings Fund wrote in its initial
The company opposed the request, as did senior lenders at
TCEH, whose books and records are also likely to be probed.
But Sontchi said discovery "needs to get done sooner rather
"It will be extensive and expensive, but that's the way it's
going to be," the judge said.
The case, one of the largest-ever Chapter 11 bankruptcies,
is messy due to its sheer size and because of the complexity of
Energy Future's capital structure, which includes myriad
creditor factions at a handful of subsidiaries.
The bankruptcy could last months or years, and could
generate hundreds of millions of dollars in fees for law firms
and financial advisers.
Last month, Energy Future scrapped a plan that would have
transferred TCEH to that unit's secured lenders led by Apollo
Global Management, which hold more than $20 billion in debt.
The plan would have attempted to restructure Oncor, Energy
Future's regulated power delivery business, through an infusion
of new capital.
The proposal triggered lawsuits by creditors over repayment
terms, and attracted the interest of potential buyers for Oncor,
like NextEra Energy Inc, persuading Energy Future to
ditch the plan in favor of an auction for Oncor, its most prized
Energy Future wanted to "take advantage of a bidding
competition" that has broken out between NextEra and certain
bondholders of Oncor's parent, Edward Sassower, a lawyer for
Energy Future, said at Wednesday's hearing.
Ed Weisfelner, an attorney for Wilmington Savings Fund, said
at the hearing he suspects Energy Future will not sell Oncor
itself but rather auction its post-bankruptcy equity, a move he
speculated would be designed to preserve certain tax benefits.
"They'll try to sell something that doesn't yet exist and
which they certainly don't own," Weisfelner said.
(Reporting by Nick Brown; Editing by Chizu Nomiyama)