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Energy Future cuts deal with Hunts for Oncor (8/10/15)

James Osborne

Bankrupt power giant Energy Future Holdings has finalized a deal with Dallas energy and real estate mogul Ray L. Hunt and his partners to sell its power line subsidiary Oncor, according to a court filing early Monday.

In a deal valued between $18 and $19 billion, Energy Future is making the case that the sale of Oncor to a consortium that includes its junior creditors, Hunt Consolidated, investment firms and the Texas teachers’ pension fund will pay off a larger pool of creditors than earlier plans and speed up the rest of the company’s exit from bankruptcy court.

Energy Future, the former TXU Corp., filed for Chapter 11 protection from $40 billion in debt in Wilmington, Del. in April 2014, the failed end to what had been the largest leveraged buyout in U.S. history.

The deal is expected to leave the private equity firms that led the deal, KKR & Co. and TPG, with none of the $8 billion they invested when they bought TXU in 2007. More critical is the question of how other creditors will react to the plan – one group had been working with the investment firm Fidelity on their own bid for Oncor.

The Hunt consortium plans on placing Oncor into a real estate investment trust, a corporate structure that would shift income tax away from the company to its shareholders. A REIT has never been applied to a power utility of Oncor’s size – it serves more than 3 million customers across North and West Texas.

Among attorneys working on the deal, a looming question remains how the Texas Public Utility Commission, which must sign off on the sale of all utilities, will consider the REIT structure in determining what rates Oncor will be allowed to charge electrical customers.

“In coordination with existing Oncor management, we now begin the process of working closely with the PUCT and other stakeholders to have our proposal thoroughly reviewed, and to receive the necessary regulatory approvals,” Hunter Hunt, Ray’s son and a top executive at the company, said in a press release.

The deal also hinges on approval from the Internal Revenue Service that the splitting apart of Energy Future – with Oncor going to the Hunts and Luminant and TXU Energy to the company’s largest creditors group – does not trigger a tax bill that could run into the billions.

If approved by the courts and government, the deal would mark the end of a long chase by Hunt of Texas’ largest power utility.

In 2006, as the sale of TXU was in negotiations, Hunter Hunt offered $10.5 billion for what is now Oncor.

The company has since built a foothold in the electricity industry through Sharyland Utilities, which runs a relatively small power line network in South and Central Texas. Now they’re preparing for expansion.

Earlier this year, the Hunts broke with their long history operating as a private company when they held a public stock offering for InfraREIT, a real estate trust through which they plan to build their power line business across Texas, New Mexico and Arizona. Heading the new company is David Campbell, a former top executive at Energy Future.

In the press release Monday, Hunt said it would keep Oncor’s name and the company’s headquarters in Dallas.

http://bizbeatblog.dallasnews.com/2015/08/energy-future-cuts-deal-with-hunts-for-oncor.html/