(Reuters) - A judge on Monday cleared the way for Energy Future Holding Corp to begin seeking creditor approval for a plan to end its massive bankruptcy, but also warned Texas’s biggest power company that last-minute changes may endanger its Chapter 11 exit.
The company has spent 18 months hammering out deals with its complicated web of creditors to reduce its $42 billion of debt.
On Friday, Energy Future made last-minute changes to its plan to appease more creditors. However, the changes included dropping a proposal to pay cash to holders of some $1.9 billion in bonds, and instead reinstate some of the bonds. The plan also transferred the obligation for the bonds from the corporate parent to the company’s power generation business.
“I am operating in a somewhat altered universe than the one I was operating in when I took the bench this morning,” said U.S. Bankruptcy Judge Christopher Sontchi, after learning of the new treatment of the bonds.
Energy Future said that whether the bondholders are paid in full in cash or have their notes reinstated, the outcome is the same - the value of their investments is unaffected, or in bankruptcy-speak, unimpaired.
That is important because a bankrupt company does not need to seek votes from unimpaired creditors. However, if the bondholders prove the reinstated bonds are impaired, Sontchi said that would be fatal for the company’s hopes to exit bankruptcy because those creditors were denied a chance to vote on the plan.
“The debtors are putting all their eggs in the basket that these creditors are unimpaired,” said Sontchi at Monday’s hearing.
If the company fails to prove the bonds are unaffected, then the company would likely have to rewrite its plan and give the bondholders a chance to vote, or pay them in cash. It would also have to try again get approval from Sontchi to exit bankruptcy.
Fidelity Management is among the largest holders of the bonds that Energy Future wants to reinstate. The money manager was an ally of Energy Future when the bankruptcy started in early 2014, but raised strong objections on Monday.
In recent months the company has abandoned the Fidelity-backed plan and embraced a plan led by an affiliate of privately held Hunt Consolidated Inc, which manages investments in energy and real estate, to acquire Energy Future’s power distribution business known as Oncor in a $12.2 billion deal.
Energy Future was created from the $32 billion leveraged buyout of TXU Corp, a deal led by the private equity firms KKR & Co, TPG and an affiliate of Goldman Sachs Group Inc.
Hearings to confirm Energy Future’s bankruptcy exit plan begin on Nov. 3.
The case is Energy Future Holdings Corp, U.S. Bankruptcy Court, District of Delaware, No. 14-10979