Energy Future and creditors discuss restructuring; no agreement yet

By Caroline Salls

Pittsburgh, April 15 - Energy Future Holdings Corp., Energy Future Competitive Holdings Co., Texas Competitive Electric Holdings Co. LLC and Energy Future Intermediate Holding Co. LLC and specified creditors held talks on the companies' capital structure, including the possibility of a restructuring transaction, but no agreement has been reached.

According to an 8-K filed Monday with the Securities and Exchange Commission, the creditors that participated in the talks were some unaffiliated holders of first-lien senior secured claims against Energy Future Competitive and Texas Competitive and some of its subsidiaries.

During the discussions, proposed changes to the companies' capital structure were presented to the creditors "to create a sustainable capital structure and maximize enterprise value."

Energy Future said the companies and the creditors have not reached agreement on the terms of any change in the companies' capital structure, and the principals of the companies and the creditors are currently not engaged in ongoing negotiations.

According to the 8-K, the companies will continue to evaluate a range of future changes to their capital structure, in addition to the proposed changes, as part of their liability management program.

In addition, the companies and the holding company's existing equityholders may hold more discussions with the creditors and other creditors and their professional advisers.

Proposal terms

Energy Future said the proposed changes to the companies' capital structure discussed with the creditors included a consensual restructuring of Texas Competitive's $32 billion of debt.

To implement that proposed restructuring, Energy Future Holdings and Texas Competitive and some of its subsidiaries would make a pre-packaged Chapter 11 bankruptcy filing.

Under the proposed pre-packaged plan of reorganization, the Texas Competitive first-lien creditors would exchange their claims for a combination of holding company equity in an amount to be negotiated and their share of $5 billion of cash or new long-term Texas Competitive debt.

Following the issuance of Energy Future Holdings equity interests to the first-lien lenders, sponsors would hold a to-be-negotiated amount of the equity interests in the holding company.

Following implementation of the restructuring proposal, the holding company would continue to hold all of the equity interests in Energy Future Competitive and Energy Future Intermediate, Energy Future Competitive would continue to hold all of the equity interests in Texas Competitive, and Energy Future Intermediate would continue to hold all of the equity interests of Oncor Holdings.

Texas Competitive would also obtain access to $3 billion of new liquidity through a $2 billion first-lien revolver and a $1 billion letter of credit facility. Texas Competitive would also issue $5 billion of new long-term debt, according to the 8-K.

Sponsor support conditions

Along with the transmittal of the restructuring proposal to the creditors, Energy Future said the sponsors told the creditors that they would support the restructuring proposal if the sponsors retained 15% of Energy Future Holdings' equity interests, with the Texas Competitive first-lien creditors receiving the remaining 85% of the holding company's equity interests.

The sponsors also indicated that they would be willing to contribute new equity capital to the holding company on customary terms for an investment of this type to facilitate implementation of the restructuring proposal in an amount that would provide substantial additional liquidity to Energy Future Holdings and Energy Future Intermediate.

The sponsors would receive additional holding company equity on account of the contribution.

Creditor concerns

Although no agreement has been reached, Energy Future said the creditors have indicated that they would be willing to consider the restructuring proposal if it adequately addresses and compensates the creditors for the risks and consequences of exchanging a portion of their senior secured claims against Texas Competitive into holding company equity.

The company said the creditors would also consider the proposal if the amount of post-reorganization debt at Texas Competitive to be distributed to the first-lien creditors was significantly increased, if the value of Texas Competitive and Energy Future Holdings were modified in the allocation of holding company equity so the first-lien creditors would receive significantly greater value and Energy Future Intermediate's negative free cash flow is addressed and if a sustainable debt capital structure is achieved for Energy Future Intermediate and the holding company without reliance on Texas Competitive's cash flows.

Looking ahead

Energy Future said the companies expect to continue to explore all available restructuring alternatives to facilitate the creation of sustainable capital structures and to otherwise attempt to address the creditors' concerns with the restructuring and sponsor proposals.

Also, the creditors have directed their advisers to continue to work with the companies and their advisers to explore whether the parties can reach an agreement on the terms of a consensual restructuring.

The companies have retained Kirkland & Ellis LLP and Evercore Partners to advise them in connection with the potential changes to their capital structure and to assist in the evaluation and implementation of other potential restructuring options.

The creditors have retained Paul, Weiss, Rifkind, Wharton & Garrison LLP and Millstein & Co., LP to advise them and to assist in their evaluation of potential restructuring options.

Energy Future is a regulated utility and power generation company based in Dallas.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.