By Maria Chutchian
Energy Future Holdings (EFH), the parent company of Texas utility giants Luminant and Oncor Electric, is winding down what has become one of the longest and most unpredictable corporate bankruptcies in recent memory. Its success now rests in the hands of Texas regulators.
EFH has kept the restructuring community guessing (and its lawyers busy with billable hours) as it jumped from one reorganization strategy to the next over the past three years, hitting a new roadblock every time it seemed like its path to freedom was cleared. Earlier this week, ahead of yet another plan confirmation hearing, EFH finagled last-minute deals with two of its combative creditor groups, leaving only a group of asbestos claimants to contend with. The hearing is ongoing in Delaware, but EFH will most likely see its plan confirmed by next week.
EFH was known as TXU Corp until a historic $45 billion leveraged buyout by KKR, Goldman Sachs and TPG Capital in 2007. Falling energy prices quickly crippled the company – Berkshire Hathaway sold its investment in the company in 2013, at a loss of $873 million – and the company filed its bankruptcy in April 2014, laden with $40 billion in debt. The company touted a deal with certain creditors that would spin off the Luminant side of the business without incurring a significant tax liability and allow unsecured creditors to take over the remaining Oncor side. Three months later, the deal was scrapped as interest in Oncor grew and hefty intercompany claims between the two EFH sides surfaced.
In the years since, EFH’s restructuring proposals have shifted in the face of warring creditor groups, litigation over make-whole premiums certain senior creditors said they were owed, and outside regulatory rulings. In late 2015, the company thought it found the solution: the tax-free spinoff of its Texas Competitive Electric Holdings (TCEH) subsidiary, which included Luminant, and the sale of Oncor to Texas oil group Hunt Consolidated and a team of unsecured creditors. Oncor would be converted into a real estate investment trust (REIT) through the transaction.
Following a lengthy and hotly contested hearing in Delaware bankruptcy court, a judge signed off on the deal. But the sale of Oncor, as the regulated side of EFH, still needed the green light from the Public Utility Commission of Texas (PUCT). The commission wasn’t willing to let the buyers keep a $250 million tax benefit arising from the REIT conversion for themselves, and approved the deal on the condition that the benefit be shared with energy consumers. The Hunt deal soon fell apart.
EFH lawyers scrambled to assure the bankruptcy court and creditors that they were not back to square one. The proposed TCEH spinoff was still intact, but the company would have to go through the process of securing court approval of newly-filed plans for both sides of the company. It was able to do so for the TCEH transaction, which was approved again in August and went into effect in October.
By this time, EFH had lined up a deal to sell Oncor to Florida-based NextEra Energy, which had been angling for the acquisition since the outset of the bankruptcy. The sale values Oncor at about $19 billion. The company drummed up another plan based on this sale, but in November received an unwelcome surprise from an appeals court finding it liable for those make-whole premiums – extra fees for early loan repayment – which added up to around $660 million. The decision forced EFH to rejigger the distribution of funds to pay off its creditors, leading to a fight with those make-whole creditors over whether the plan reserved enough to cover the full amount of their claims.
This week’s settlement deals were with two of those make-whole creditor groups, offering them 95 percent or 87.5 percent of their claim amounts, depending on their priority in the debt structure.
Now, EFH is almost back to where its journey derailed last year: PUCT approval. But with no REIT aspect of the NextEra sale, the company’s odds seem a little more favorable this time around. The PUC plans to hold open meetings to discuss the matter starting February 21.
Maria Chutchian is a reporter for Debtwire covering bankruptcy. She can be reached at maria.chutchian@debtwire.com
