Energy Future owes $431 mln to noteholders, U.S. appeals court rules

(Reuters) - A unit of Texas power company Energy Future Holdings Corp must pay a $431 million premium to investors for refinancing billions of dollars of their debt at lower rates during its Chapter 11 bankruptcy, a U.S. appeals court ruled on Thursday.

The ruling by the U.S. 3rd Circuit Court of Appeals in Philadelphia, which reversed lower court decisions, was issued two weeks before Energy Future starts a trial to confirm its plan of reorganization.

The plan is built around the sale of Energy Future’s main asset, its stake in the Oncor power line business, to NextEra Energy Inc of Juno Beach, Florida, for about $18.4 billion.

Noteholders have said if they prevail at the appeals court it could cut NextEra’s investment by $500 million, which is the premium they are owed plus interest.

The three-judge appellate panel ruled that the U.S. District Court and U.S. Bankruptcy Court in Delaware erred when they held that an Energy Future unit, EFIH, was not obligated to pay noteholders an early redemption premium. EFIH refinanced their $4 billion in first-lien notes after it filed for bankruptcy, saving the company $13 million a month in interest.

The investors argued their notes contained a “make-whole” premium that was meant to compensate them for the loss of interest if the notes were repaid early.

Attorneys for EFIH and noteholders could not immediately be reached for comment on the ruling.

In siding with the investors, Judge Thomas Ambro said the notes were governed by New York law, and decisions by that state’s courts “reinforce our conclusion that EFIH must pay the make-whole.”

Energy Future filed for bankruptcy in April 2014 with $42 billion of debt, making it one of the largest Chapter 11 cases since the financial crisis.

The company split its business during its Chapter 11, and its power generation business known as Luminant and its retail utility, known as TXU, have exited bankruptcy under the ownership of investment funds that held its debt.

Energy Future’s remaining business is its holding in Oncor, Texas’s largest operator of power lines.