TXU Energy, Luminant Cleared to Exit Bankruptcy Now - DJNF
Power generator Luminant and retail electricity provider TXU Energy Inc., two of the largest energy businesses in Texas, are headed toward an exit from bankruptcy after winning confirmation of a chapter 11 plan. "I believe at the end of the day, this is the best possible deal," Judge Christopher Sontchi said Friday, brushing aside objections to the plan.
Judge Sontchi's approval wraps up the first phase of the $42 billion bankruptcy case of Energy Future Holdings Corp. of Dallas. The plan confirmed Friday launches a new company containing Luminant and TXU Energy, the two main operating businesses owned by Energy Future.
"We are entering an exciting time in our company's evolution, marked by our pending emergence from the chapter 11 process," Energy Future said in a statement released through a spokesman.
Phase two of one of the largest corporate workouts on record involves Energy Future's other main division, which owns 80% of Oncor, a thriving electricity transmissions business that is operating free of Energy Future's bankruptcy.
Upon exit, Luminant and TXU Energy will be taken over by senior lenders, including affiliates of Apollo Global Management, Brookfield Asset Management, and Oaktree Capital Management.
Senior lenders lost more on their investment in the former TXU Corp. than did the equity stakeholders that had $8 billion on the line, owners Kohlberg Kravis Roberts & Co., TPG, and Goldman Sachs & Co., according to evidence submitted during the five-day confirmation hearing in the U.S. Bankruptcy Court in Wilmington, Del.
The 2007 leveraged buyout of the former TXU Corp. ran into trouble after energy prices took a dive, eating into the profits of the electricity business.
Owed $24.4 billion, Apollo and other senior lenders agreed more than three years ago to exchange their debt for ownership of the companies. The wait was because of Energy Future's struggles to line up support for a restructuring from other creditors.
The company filed for bankruptcy protection in April 2014 with a restructuring plan that had insufficient support to carry it through court. Junior creditors of the Luminant and TXU Energy division fought the company to a standstill, forcing pursuit of a new plan.
Along the way, junior creditors agreed to "disarmament" provisions that made confirmation proceedings relatively smooth. They are getting $550 million cash, a partial recovery on what they are owed.
Taxes were a pivotal issue for Energy Future's restructuring. Done incorrectly, the separation of Luminant and TXU Energy into a separate company could have left Energy Future with a tax bill of more than $6.5 billion. The tax bill would have weighed on the parent company and its remaining property, a majority stake in Oncor.
Creditors who objected to the Luminant and TXU Energy plan said threats from senior lenders to push a taxable deal through were hollow, as the lenders benefited from the tax-free spinout.
Backers of the plan, including most creditors involved in the case, warned a taxable deal would have threatened the recovery of lenders owed billions and would have changed the shape of the deal for Oncor that is the central feature of the phase two plan.
Judge Sontchi sided with backers. The prospect of a taxable deal that would have rendered Energy Future insolvent was "not a remote possibility," the judge said.
Phase two of Energy Future's bankruptcy exit is built around a proposed deal to sell its stake in Oncor to NextEra Energy Inc. of Florida. NextEra is offering $9.5 billion in a deal that values Oncor at $18.4 billion. Other contenders are still in the field, including Hunt Consolidated Inc., which was Energy Future's original choice of a buyer for Oncor.
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