(New throughout, adds court approval for $5.4 billion borrowing, details of plan)
By Tom Hals
WILMINGTON, Del, June 6 (Reuters) - Bankrupt Energy Future Holdings, Texas’s largest power company, received court approval on Friday for one of its main businesses to borrow $5.4 billion to carry out a refinancing that is key to its huge restructuring.
Approval of the loan to Energy Future’s EFIH unit, which controls the Oncor power lines business, was tied to a settlement offer that was also approved on Friday by U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware.
In April, Energy Future filed one of the largest U.S. bankruptcies after a year of negotiations with creditors. The company is working on a restructuring plan to slash its $42 billion in debt.
Under that plan, the EFIH unit would use the $5.4 billion to refinance some senior debt to lower its interest payments.
Some senior creditors opposed the refinancing, saying it favored some parties such as investment funds in order to buy their support. But Sontchi rejected that contention.
“I‘m not going to hold something against Pimco and Fidelity for reaching a deal sooner than others,” said Sontchi. He said the investment management firms were treated better because they also provided some of the $5.4 billion loan.
The ruling did not resolve a dispute over whether senior creditors must be paid an early redemption payment, known as a make-whole. A trial on that dispute is scheduled for September.
Energy Future took on much of its debt in 2007, when it was formed with the record buyout of TXU Corp, led by KKR & Co , TPG Capital Management and the private equity arm of Goldman Sachs. The deal turned out to be an ill-timed bet on natural gas prices, which soon began to plummet.
Some creditors have argued Energy Future’s restructuring is two separate bankruptcies because the company is being split.
Energy Future anticipates bringing its EFIH unit out of bankruptcy under the control of that unit’s unsecured creditors.
The company also anticipates spinning off its TCEH business to senior creditors, which are owed $24.4 billion. The TCEH unit owns Luminant power plants and the utility TXU Energy.
TCEH’s junior creditors oppose the spin-off plan because it will leave them with only about $200 million of the $7.7 billion they are owed, or less than 3 cents on the dollar.
Earlier on Friday, the company said it will postpone until July 18 a hearing to seek permission to enter into a restructuring support agreement. The RSA allows the company to pay professionals and helps to hold its creditors to the restructuring process and timeline.
The company will still need to seek a traditional vote of creditors. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Jeffrey Benkoe and David Gregorio)