October 15, 2013 / 4:19 PM / in 4 years

Some Energy Future creditors walk away from talks

NEW YORK (Reuters) - Some creditors of Energy Future Holdings (EFH) have stopped negotiating for now with the Texas power company as it looks to restructure its $40 billion of debt, adding another obstacle as debt holders hope to find a structure for a possible bankruptcy before the end of the month.

Unsecured bondholders at Energy Future Intermediate Holdings (EFIH), the parent of Energy’s Future’s regulated subsidiary, are no longer engaged in ongoing discussions with the company and other creditors, according to a filing with U.S. regulators on Tuesday.

The filing did not specify why the creditors had decided not to continue talks. But the company did disclose three possible restructuring plans proffered by different creditor groups, each vastly different than the other in structure.

The filing said that the EFIH creditors have directed their advisers to continue to work with the company to explore whether the parties can reach an agreement.

Secured lenders at Texas Competitive Electric Holdings, which represents Energy Future’s unregulated subsidiary, and EFIH’s unsecured bondholders had previously been in direct negotiations. The TCEH creditors have agreed to remain in negotiations, according to the filing, as has a “significant creditor” who owns debt in various parts of the company’s capital structure.

The “significant creditor” is Fidelity Investments, according to several sources familiar with the matter. Confidentiality agreements with the TCEH creditors will end October 21 if they are not extended, one of the sources said.

EFH’s creditors want to finalize a restructuring plan before November 1, when $250 million in bond payments are due. Filing for bankruptcy before November 1 would suspend the bond payments. Filing without a restructuring plan could entail years of battles and competing restructuring plans in bankruptcy court.

EFH, formerly TXU Corp, was taken private in 2007 in a $45 billion buyout, the largest-ever leveraged buyout. The deal saddled the company with debt just before a sharp decline in natural gas prices and energy markets.

The buyout consortium included private equity firms KKR & Co LP (KKR.N), TPG Capital Management LP TPG.UL and Goldman Sachs Group Inc’s (GS.N) private equity arm.

The EFIH unsecured bonds dropped 5.5 points this morning to 56.5 upon release of the public filing, while Texas Competitive Electric Holdings bank debt traded up about half a point to 67.75.


    In this latest round of negotiations, TCEH bondholders advanced a plan that would give them virtually all of the company’s equity plus $6 billion of new senior secured debt and $2 billion of pay-in-kind coupon bonds, while second-lien bondholders at EFIH would get a $1 billion cash paydown. The equity sponsors, along with unsecured bondholders at EFH and EFIH, would receive $800 million funded by additional senior debt, to be allocated in a manner to be determined.

    Fidelity, the “significant creditor,” proposed a plan that would give about 94 percent of EFH’s equity to the company’s secured lenders, while enabling EFIH unsecured bondholders to retain 4 percent and the company’s sponsors to keep 2 percent. Fidelity’s plan would also give secured lenders $8 billion of cash raised from new financing.

    To further entice EFIH unsecured bondholders, they, along with the company’s sponsors and unsecured bondholders of its parent, would receive a “tracking stock” under Fidelity’s plan, which would distribute payments based on the financial performance of the company’s regulated business.

    Some of the proceeds from the tracking stock would be used to repay 35 percent of the money owed to EFIH second lien bondholders, reducing overall debt for the company.

    Unsecured EFIH bondholders proposed a plan that would provide them with a $1.45 billion cash payment and $100 million EFIH unsecured note, effectively implying a near full recovery for their claims.

    Fidelity declined to comment.

    Reporting by Michael Erman and Billy Cheung, Additional reporting by Nick Brown; Editing by Andrew Hay and Bob Burgdorfer

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