(Updates throughout after court ruling on venue)
By Tom Hals
WILMINGTON, Del, May 22 (Reuters) - Texas’s largest power company, Energy Future Holdings, overcame the first challenge to its huge bankruptcy on Thursday when a Delaware judge ruled the Chapter 11 case should stay in his court rather than be transferred to Dallas, as some creditors wanted.
Judge Christopher Sontchi said Energy Future could have filed in several courts, and that it was clearly forum shopping, but he said that doing so was not “insidious”.
“Given that it is a financial restructuring and given that the parties are in the Northeast, I think that favors Delaware,” he said, accepting the company’s main argument for filing in Wilmington.
The Dallas-based company has said it plans to restructure its $42 billion in debt, not its operations. It argued that most parties involved in the restructuring are hedge funds and other sophisticated investors that are based in New York, a two-hour train ride from Wilmington.
Seeking the transfer was Delaware-based Wilmington Savings Fund Society (WSFS), trustee for second-lien notes issued by the Energy Future unit that owns the generating business Luminant and TXU Retail.
“All the employees work and live in Texas, not in Delaware. All the assets are in Texas, none in Delaware. All the customers are in Texas, none in Delaware,” Jeffrey Jonas, a partner in Brown Rudnick and an attorney for WSFS, told the court.
Sontchi rejected the focus on the location of employees and customers, noting that none of them objected to having the case in Wilmington.
Energy Future filed for bankruptcy in April in Wilmington. The company was burdened by debt stemming from its record 2007 leveraged buyout of TXU Corp, led by KKR & Co, TPG and the private equity arm of Goldman Sachs.
Energy Future has subsidiaries incorporated in Delaware, which allows it to file in the state’s busy U.S. Bankruptcy Court. The court has handled many big bankruptcies with no real connection to the state, such as that of the Los Angeles Dodgers baseball team.
Cases can be transferred if the transfer is seen to be in the interest of justice and fairness to the parties involved.
Only two cases with at least $1 billion in assets have been moved out of Wilmington in the past 30 years: Harrahs Jazz Co, in 1995, and Hawaiian Telecom Communications Inc, in 2008, according to Lynn LoPucki, a professor at UCLA Law School.
Earlier on Thursday, an attorney for Energy Future said the company will delay seeking court approval of a restructuring support agreement from June 6 to June 30 after creditors said they need more time to study the deal.
The plan involves splitting off the Luminant and TXU subsidiary, and turning those businesses over to senior creditors in return for forgiving some of the $24 billion the creditors are owed.
The plan also proposes that a separate Energy Future subsidiary that owns Oncor, a power transmission business that is not bankrupt, would emerge from bankruptcy under the control of the subsidiary’s junior unsecured creditors.
The case is In re Energy Future Holdings, U.S. Bankruptcy Court, District of Delaware, No. 14-10979 (Reporting by Tom Hals in Wilmington, Delaware; Editing by Jan Paschal and Peter Galloway)