| June 25
June 25 Bankrupt Energy Future Holdings' novel
plan to sell itself through a loan provision has Texas's largest
power company in hot water with creditors, who accuse it of
trying to skirt a public sale process and hiding its true value.
The company and its creditors are heading for a courtroom
showdown on Monday when Energy Future will seek a judge's
approval to take on a $2 billion loan that would give a group of
hedge fund lenders 60 percent of the company when it emerges
from its $48 billion bankruptcy.
Other creditors have cried foul, saying Energy Future hasn't
considered competing offers and is selling itself without a
traditional court-supervised bankruptcy auction. Creditors have
estimated Energy Future has a total enterprise value, which
includes debt, of $21 billion thanks to its EFIH unit, which
owns Texas's biggest power lines operator, Oncor.
The fight centers on EFIH's plan for a debtor-in-possession,
or DIP, loan that would refinance high-yielding notes.
DIP loans are meant to sustain a bankrupt business during a
reorganization, although lenders often use the loans to control
the case. Converting the loan into an ownership stake is
unusual, according to legal experts.
The company's legal team has said it spent a year
negotiating with creditors prior to the April bankruptcy and the
loan proposal was the best deal on the table.
In recent weeks two groups of creditors have offered their
own converting DIP loans that they say offer better terms. One
group teamed up with NextEra Energy Inc, the biggest producer of
wind power in Texas, which would contribute $1.6 billion to the
loan, according to court documents. NextEra declined to comment.
"The debtors are selling their equity without having
conducted any formal sale process or performed any formal
valuation to determine if the proposed equity investment is on
reasonable terms," wrote James Peck, a lawyer for the official
committee of unsecured creditors, in a Tuesday objection to the
proposed loan. He called the loan "unprecedented."
The U.S. Supreme Court has said bankrupt companies must sell
assets in a way that is fair and transparent, said Stephen
Selbst, a bankruptcy attorney with Herrick, Feinstein in New
York who is not involved in the case. "People keep trying to
find ways around that."
Energy Future can consider alternate transactions, but
creditors said once the loan is approved restrictive provisions
will deter any potential bidders.
John Penn, a bankruptcy attorney at Perkins Coie in Dallas,
who is not involved in the case, said the judge has flexibility
to decide what to with the assets if he rejects the company
proposal on Monday.
"Sometimes it becomes a formalized process with bid
procedures and other times you just have the competing parties
show up in court with their offers and each makes their pitch,"
Separately, Energy Future is spinning off its TXU Energy
retail utility and Luminant power generating business to the
unit's secured lenders.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by