By Nick Brown
Oct 30 Energy Future Holdings (EFH), the
embattled Texas power generator, is planning to make a $270
million interest payment due on Friday, according to a person
familiar with the matter.
Many creditors and industry analysts had expected the
company to skip the payment and file for bankruptcy to shield it
from creditors while it restructured in court.
The decision to make the payment could be a crucial step in
the odyssey of EFH's path toward a restructuring. While it gives
the company an extra six months to try to negotiate with
creditors, it may also anger some of its more senior bank
lenders who would have first claim on its remaining assets,
several people close to the matter told Reuters this week.
The planned payment, first reported by the Wall Street
Journal, would allow the company to avoid default, and could
delay any bankruptcy filing by extending the time the company
has to negotiate a restructuring with creditors. Its next
interest payment on the bonds in question is not due until May.
The interest payment, owed to subordinated bondholders at
EFH's unregulated power generating unit, is a drop in the bucket
in the context of EFH's $40 billion debt load.
Still, paying it could chill restructuring talks with
holders of $20 billion in first-lien bank debt, who would have
first dibs on certain of the company's assets in a bankruptcy
and are not keen on seeing other creditors receive cash payouts,
several people close to the talks told Reuters.
For that reason, many of the people believed the company
would skip the payment. But EFH has consistently told creditors
in restructuring talks it was keeping the payment option open,
the people said.
EFH declined to comment on its plans.
Energy Future Holdings was created in October 2007 in a $45
billion buyout of Dallas-based TXU Corp, the biggest electricity
generating and distribution company in Texas.
The buyout, led by KKR & Co, TPG Capital Management
LP and the private equity arm of Goldman Sachs,
saddled the company with debt just as natural gas prices were
about to plunge, making the company's coal-fired plants
The payment does not necessarily mean a bankruptcy won't
happen. The company could change its mind on making the payment.
Or the company could reach a prearranged deal with its creditors
that calls for it to file Chapter 11.
While the payment extends the runway for discussions by six
months, a deal could be reached at any time. The decision to
make the payment could mean the sides are close to a deal and
wanted a few extra days to seal it. However, several sources
familiar with the talks told Reuters this week that creditor
factions are still far apart on the terms of a restructuring.
The linchpin in discussions centers on first- and
second-lien bondholders at the company's regulated power
delivery subsidiary, Energy Future Intermediate Holdings, the
people said. Those bondholders are demanding compensation for
refinancing their bonds, which would likely take the form of new
debt, since the company is not in a position to raise cash, two
of the people said.
But the bank lenders, given the size and priority of their
claims, have more leverage than other creditors. The gap between
what the bondholders are demanding and what the lenders are
willing to give had not been bridged by Wednesday evening, the
Despite the lenders' initial stance, some of the bondholders
have become restricted from trading over the last several days,
meaning talks are alive and well, two of the people said.
It was unclear whether talks would die down if the interest
payment was made.
About $29 billion of EFH's total debt sits on its
unregulated side, on the books of the holding company that owns
the equity of its retail and power generation businesses. EFIH
holds about $7.7 billion in debt, while the balance sits at the