Energy Future Holdings looks at merits of prepackaged bankruptcy

Due to financial stresses, including borrowing costs, Texas-based power producer Energy Future Holdings has engaged in talks with creditors about various “restructuring” alternatives, including a prepackaged Chapter 11 bankruptcy.

Energy Future Holdings reported on these talks with creditors in an April 15 SEC filing.

Energy Future Holdings Corp. (EFH Corp.), Energy Future Competitive Holdings Co. (EFCH), Texas Competitive Electric Holdings Co. LLC (TCEH), and Energy Future Intermediate Holding Co. LLC (EFIH and together with EFH Corp., EFCH and TCEH, the “Companies”) executed confidentiality agreements on March 18 with certain unaffiliated holders of first lien senior secured claims against EFCH, TCEH and certain of TCEH’s subsidiaries, to facilitate discussions with the creditors concerning the Companies’ capital structure. The agreements allowed later public disclosure, which is being done through the April 15 SEC filing.

As part of an ongoing liability management program begun in late 2009, EFH Corp. and its subsidiaries (excluding Oncor Electric Delivery Holdings Co. LLC (Oncor Holdings) and its subsidiaries) have explored ways to reduce the amount and extend the maturity of their outstanding debt. Since 2009, the companies (collectively and individually) have captured $2.5bn of debt discount and extended the maturities of approximately $25.7bn of debt to 2017-2021. Although the Companies do not have material debt maturities until October 2014, the Companies have continued to consider and evaluate a number of transactions and initiatives to address their highly leveraged balance sheets and significant cash interest requirements.

Consistent with the ongoing liability management program, the Companies and the creditors recently engaged in discussions with respect to the companies’ capital structure, including the possibility of a restructuring transaction. The Companies and the creditors have not reached agreement on the terms of any change in the Companies’ capital structure. The principals of the Companies and the creditors are currently not engaged in ongoing negotiations. The Companies (collectively and individually) will continue to consider and evaluate a range of future changes to their capital structure as part of their liability management program.

In addition, the Companies and EFH Corp.’s existing equity holders may engage from time to time in additional discussions with the creditors, other creditors of the Companies, including creditors of TCEH, EFIH and EFH Corp., and their professional advisors.

The proposed changes to the Companies’ capital structure discussed with the creditors included a consensual restructuring of TCEH’s approximately $32bn of debt (as of Dec. 31, 2012). Specifically, to effect the restructuring proposal, EFCH, TCEH, and certain of TCEH’s subsidiaries would implement a prepackaged plan of reorganization by commencing voluntary cases under Chapter 11 of the U.S. Bankruptcy Code. Under this proposed plan of reorganization, the TCEH first lien creditors would exchange their claims for a combination of EFH Corp. equity, in an amount to be negotiated, and their pro rata share of $5bn of cash or new long-term debt of TCEH and its subsidiaries on market terms.

Following the issuance of EFH Corp. equity interests to the TCEH first lien lenders under the proposed plan of reorganization, the sponsors would hold a to-be-negotiated amount of the equity interests in EFH Corp. Following implementation of the restructuring proposal, EFH Corp. would continue to hold all of the equity interests in EFCH and EFIH, EFCH would continue to hold all of the equity interests in TCEH, and EFIH would continue to hold all of the equity interests of Oncor Holdings. TCEH also would obtain access to $3bn of new liquidity through a $2bn first lien revolver and a $1bn letter of credit facility. TCEH would also issue $5bn of new long-term debt.

“The Companies expect to continue to explore all available restructuring alternatives to facilitate the creation of sustainable capital structures for the Companies and to otherwise attempt to address the Creditors’ concerns with the Restructuring Proposal and Sponsor Proposal,” said the filing. “The Creditors have directed their advisors to continue to work with the Companies and their advisors to explore further whether the parties can reach an agreement on the terms of a consensual restructuring.”

TCEH owns or leases 15,427 MW of generation capacity in Texas, which consists of lignite/coal, nuclear and natural gas-fueled facilities. TCEH is also one of the largest purchasers of wind-generated electricity in Texas and the U.S. TCEH also provides competitive electricity and related services to 1.75 million retail electricity customers in Texas.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.