Energy Future Holdings talks with creditors fail so far

Energy Future Holdings (EFH Corp.) said in its May 2 Form 10-Q report that it is not currently engaged in talks with creditors to restructure debt and that a possible prepackaged bankruptcy filing is still in the works.

The Texas utility company said it recently engaged in discussions with certain unaffiliated holders of first lien senior secured claims against Energy Future Competitive Holdings Co. LLC (EFCH), Texas Competitive Electric Holdings Co. LLC (TCEH) and certain of TCEH’s subsidiaries with respect to the Energy Future Holdings capital structure, including the possibility of a restructuring transaction. “During the discussions, proposed changes to our capital structure were presented to the Creditors,” the company added. “The proposed changes included a consensual restructuring of TCEH’s debt under which EFCH, TCEH, and certain of TCEH’s subsidiaries would implement a prepackaged plan of reorganization by commencing voluntary cases under Chapter 11 of the United States Bankruptcy Code. Under this proposed plan, the TCEH first lien creditors would exchange their claims for a combination of EFH Corp. equity and cash or new long-term debt of TCEH, and the Sponsors would continue to hold an equity investment in EFH Corp.”

A prepackaged bankruptcy is one where creditors and the company agree beforehand on what they need the bankruptcy judge to approve in terms of a financial restructuring, which means the bankruptcy process itself is usually smooth and short-lived. EFH Corp. controls a number of power plants in Texas, many of them coal-fired.

The “Sponsors,” which currently control EFH Corp., are certain investment funds affiliated with Kohlberg Kravis Roberts & Co. L.P., TPG Global LLC and GS Capital Partners, an affiliate of Goldman, Sachs & Co.

The Form 10-Q added: “The Sponsors communicated a willingness to contribute new equity capital to EFH Corp. to facilitate implementation of the proposed plan in an amount that would provide substantial additional liquidity to EFH Corp. and [Energy Future Intermediate Holding Co. LLC] EFIH, provided that in such circumstances the Sponsors would receive additional equity of EFH Corp. Following implementation of the proposed plan, 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 in Oncor Holdings. We and the Creditors have not reached agreement on the terms of any change in our capital structure and are currently not engaged in ongoing negotiations. We will continue to consider and evaluate a range of future changes to our capital structure, in addition to the proposed changes described above. In addition, we and the Sponsors may engage from time to time in additional discussions, which may include proposed changes to our capital structure, with the Creditors, other creditors and their professional advisors.”

EFH Corp. is a Dallas-based holding company that conducts its operations principally through its TCEH and Oncor subsidiaries. EFH Corp. is a subsidiary of Texas Holdings, which is controlled by the Sponsor Group. EFCH is a holding company and a wholly-owned subsidiary of EFH Corp., and TCEH is a wholly-owned subsidiary of EFCH. TCEH is a holding company for subsidiaries engaged in competitive electricity market activities largely in Texas, including electricity generation, wholesale energy sales and purchases, commodity risk management and trading activities, and retail electricity sales. EFIH is a holding company and a wholly-owned subsidiary of EFH Corp. Oncor Holdings, a holding company and a wholly-owned subsidiary of EFIH, holds about an 80% equity interest in Oncor. Oncor conducts regulated electricity transmission and distribution operations in Texas. TCEH operates largely in the ERCOT market.

EFH Corp. has two reportable segments: the Competitive Electric segment, consisting largely of TCEH, and the Regulated Delivery segment, consisting largely of its investment in Oncor.

“EFH Corp.’s competitive business has been and is expected to continue to be adversely affected by the sustained decline in natural gas prices and its effect on wholesale and retail electricity prices in ERCOT,” the company said. “Further, the remaining natural gas hedges that TCEH entered into when forward market prices of natural gas were significantly higher than current prices will mature in 2013 and 2014. These market conditions challenge the long-term profitability and operating cash flows of EFH Corp.’s competitive businesses and the ability to support their significant interest payments and debt maturities, and could adversely impact their ability to obtain additional liquidity and service, refinance and/or extend the maturities of their outstanding debt.”

As of March 31, 2013, TCEH had $1.7bn of cash and cash equivalents and $212m of available capacity under its letter of credit facility. Based on the current forecast of cash from operating activities, which reflects current forward market electricity prices, projected capital expenditures and other cash flows, the parent company expects that TCEH will have sufficient liquidity to meets its obligations until October 2014, at which time a total of $3.8bn of the TCEH Term Loan Facilities matures. TCEH’s ability to satisfy this obligation is dependent upon the implementation of one or more of the actions that have been the subject of negotiations with creditors.

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.