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Hunt’s play for Oncor gets new life in Energy Future bankruptcy (7/23/15)
Dallas billionaire Ray L. Hunt’s pursuit of Oncor, Texas’ largest power utility, gained momentum Thursday, as negotiations in the 18 month-old Energy Future Holdings bankruptcy case took another sharp turn.
Energy Future’s attorneys filed a new reorganization plan in U.S. Bankruptcy Court in Delaware Thursday and stated the company was now “working to reach rapid closure” with a consortium led by Hunt Consolidated, the energy and real estate conglomerate.
The filing reversed course from a month ago when Energy Future backed a group led by the investment firm Fidelity to take over Oncor. At the time one of the company’s attorneys characterized Hunt’s plan as so unlikely “a galaxy of stars would need to align.”
In a statement Thursday, Hunter Hunt, CEO of Hunt Consolidated Energy, described their proposal as offering a “quick resolution” to the Energy Future bankruptcy.
“We look forward to working diligently with EFH in the coming days to be chosen as the final bankruptcy plan filed with the court. If selected, we will work closely with the Public Utility Commission of Texas and other stakeholders to demonstrate our commitment to a strong and robust Oncor,” he said.
The reorganization plan proposed by Energy Future revolves around splitting apart the former TXU Corp., which was rebranded Energy Future Holdings after a $45 billion leveraged buyout in 2007 led by private equity firms KKR & Co. and TPG.
The power generation company Luminant and retailer TXU Energy, which have lost value as electricity prices in Texas have fallen, would be handed over to senior creditors. Oncor would be sold off, likely for upwards of $18 billion, with the money paying off various creditors groups in a complex cascade of high finance.
Hunt is proposing placing Oncor in what’s termed a real estate investment trust, a corporate structure that would shift tax liability and potentially allow higher earnings. The consortium, which includes investment firms and the Teacher Retirement System of Texas, had raised $12.1 billion to fund the deal, Energy Future said in its filing.
But they might still have competition. Energy Future said Thursday it might still revive its deal with Fidelity should negotiations with Hunt reach an “impasse.” Also, NextEra Energy, which was pursuing a deal for Oncor until Energy Future called off a long scheduled auction last month, might jump back in.
Ray L. Hunt, the chairman of Hunt Consolidated, has been pursuing Oncor for close to a decade. With more than 3 million customers across North and West Texas, Oncor dwarfs Hunt’s own Sharyland Utilities – a relatively small player in the state’s transmission market with 50,000 customers.
When Energy Future filed for bankruptcy in April 2014, its initial reorganization plan called for Oncor to be handed over to a creditor’s group aligned with Hunt. But then NextEra jumped in with an offer, eventually forcing U.S. Bankruptcy Judge Christopher Sontchi to order an auction for the transmission company.
Hunt has since switched allegiances, partnering with a group of junior creditors led by the bankruptcy attorney Thomas Lauria. Known for his aggressive courtroom style, Lauria helped Nolan Ryan and Chuck Greenberg take control of the Texas Rangers in 2010.
The Hunt plan offers a potentially faster route out of a bankruptcy case that executives hoped would be completed months ago. Under the proposal put forward by Fidelity a month ago, the trial to decide how Energy Future’s assets are divided up would not have begun until early 2016.
In its filing Thursday, Energy Future said they were working with the Hunt group to begin that trial as early as October.
http://bizbeatblog.dallasnews.com/2015/07/hunts-play-for-oncor-gets-new-life.html/
Energy Future plans to hand Oncor to creditors, Hunts fighting for control (6/25/15)
The more than year long Energy Future Holdings bankruptcy case took an abrupt turn Thursday when the company’s attorneys announced in federal court they had a deal with multiple creditors to hand over the power line subsidiary Oncor.
The agreement effectively puts a halt to a bidding contest developing between Florida-based NextEra Energy and Hunt Consolidated, Dallas billionaire Ray L. Hunt’s energy and real estate conglomerate, for control of what is Texas’ largest power utility.
Instead creditors in the holding companies Energy Future Intermediate Holdings and Energy Future Holdings would take ownership of Oncor, which serves 3 million customers across North and West Texas. U.S. Bankruptcy Judge Christopher Sontchi canceled a scheduled auction for Oncor and set a trial date to conclude the bankruptcy case for January.
“There’s a lot of work left, but getting this on the calendar we have a schedule to live by,” said Marc Kieselstein, one of the attorneys representing Energy Future.
The former TXU Corp. declared bankruptcy in Wilmington, Del. last April, seeking protection from $40 billion in debt largely amassed during a 2007 leveraged buyout orchestrated by private equity moguls Henry Kravis and David Bonderman. At the time the company announced it would split Oncor from its unregulated businesses, generator Luminant and retailer TXU Energy. Energy Future told employees it planned to be out of court within a year.
But that deadline came and went, as attorneys professed difficultly finding middle ground with the multitude of creditor groups fighting for repayment on bonds that were trading for as little as pennies on the dollar last year.
In court Thursday, opposition rose again. Two weeks ago Hunt reached out to Energy Future with an alternative plan to take over Oncor and pay off creditors. Attorneys representing creditors aligned with Hunt argued that plan could be completed by the beginning of 2016 – at least six months ahead of Energy Future’s – and had $12.1 billion in new investment behind it.
“We’ll have the Hunts as owner and the existing Oncor management team running the business,” said attorney Thomas Lauria. “Our ability to move forward quickly is critical. We have a window of opportunity to get this in front of the court and the regulators.”
NextEra was not present in court Thursday. A spokesman declined to comment whether the company was still pursuing Oncor.
Timing is becoming an increasingly critical issue in the case, which is running roughly $1 million a day in legal costs.
Now the two proposals must vie for support among creditors. In court Thursday Energy Future’s attorneys said they had agreements with creditor groups representing $30 billion in debt, including the financial firm Fidelity, which is said to be leading the deal. The Hunt proposal meanwhile has a “core group” of supporters that own $4 billion in debt, Lauria said.
In court Thursday, Sontchi advised Energy Future it must work on both their proposal and Hunts if they are to meet their “fiduciary duty” under bankruptcy law.
The company’s attorneys agreed but also expressed skepticism.
“In our view we’re not nearly there yet. A galaxy of stars would need to align,” Kieselstein said.
http://bizbeatblog.dallasnews.com/2015/06/energy-future-plans-to-hand-oncor-to-creditors-end-bankruptcy-next-year.html/
Energy Future Holdings weighs Hunt’s offer for Oncor (6/18/15)
Since August, the Energy Future Holdings bankruptcy revolved around the auction of its prized asset, the Oncor power line company. Attorneys flew back and forth to Wilmington, Del., to argue in U.S. Bankruptcy Court over timing. Motions were filed; bids were expected to reach north of $18 billion.
Now the former TXU Corp. is considering calling off the auction and selling Oncor to Dallas billionaire Ray L. Hunt, according to sources close to the negotiations.
For a case that has largely played by the book since EFH declared bankruptcy in April 2014, the move would represent a dramatic turn of events. Just a week ago, the Dallas-based company, the largest electricity provider in Texas, was on the verge of declaring a front-runner in the auction.
NextEra Energy, which owns Florida’s largest power utility and plants and wind turbines across the country, offered a deal valuing Oncor at about $18 billion. With rising profits and assets already established in Texas, the company appeared well-positioned to take over Texas’ largest power line network with 3 million customers. For the utility once slapped with the “stalking horse” label, it would be NextEra’s auction to lose.
But then Hunt, chairman of energy and real estate conglomerate Hunt Consolidated, stepped in late last week. Teamed up with a group of junior creditors that includes BlackRock Financial Management, Anchorage Capital and Arrowgrass Capital, Hunt proposed a deal the group says is more lucrative and offers a quicker route out of bankruptcy court.
EFH, Hunt and NextEra declined to make a statement on the development.
Energy Future must sort through volumes of paperwork to figure out if what the Hunts and their partners are offering holds up. The company is scheduled to be in court July 13 to determine next steps on the auction.
“The Hunts are saying you don’t need an auction; we can make it richer. But it has risk around it,” said one attorney close to the case. “It’s pretty simple for the company — maximize the value to the estate. ... But it’s an apples and oranges comparison.”
The perceived risk involves Hunt’s idea to turn Oncor into a real estate investment trust, a corporate structure that allows income taxes to be shifted from the company to shareholders. But the REIT structure has never been applied to a major U.S. electrical utility. The Hunts will need to convince the Texas Public Utility Commission that the REIT structure is not risking Oncor’s financial security.
Complicating matters, financial services firm Fidelity is working with another group of creditors to potentially make its own offer.
For the Hunts, one of Texas’ wealthiest families, the potential acquisition of Oncor represents the chance to play a larger role in the state’s power market. Hunter Hunt, Ray’s son and a top executive at the company, has built a foothold 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 EFH.
http://www.dallasnews.com/business/energy/20150618-energy-future-holdings-weighs-hunts-offer-for-oncor.ece
Energy Future Holdings creditors said to join with Hunt for Oncor bid (6/12/15)
Hunt Consolidated Inc. is teaming up with a group of lower-ranking creditors of bankrupt Energy Future Holdings Corp. to offer almost $19 billion for its profitable Oncor power-line unit, a person involved in the bid said.
The proposal may threaten efforts by NextEra Energy Inc. to buy Oncor Electric Delivery Co. because it requires the auction for that asset to be canceled, according to the person. NextEra was said to be leading the competition to be named the lead bidder, or stalking horse, for the auction.
The Hunt offer was sent to EFH on Friday, said the person, who requested anonymity because the talks are confidential.
The Hunt-backed plan is designed to resolve a long-running dispute over how best to reorganize Dallas-based EFH and its two main divisions, one of which owns 80 percent of Oncor and the other of which owns the money-losing electricity generating businesses.
Hunt and the lower-ranking creditors would get the Oncor side, while more senior lenders would get the power-generating side in a tax-free spinoff, the person said. The new company to emerge would own all of Oncor and be organized as a real estate investment trust, according to the person.
Jeanne Phillips, a spokeswoman for the energy conglomerate controlled by the Hunt family, didn’t return calls for comment on the proposal. Allan Koenig, an EFH spokesman, declined to comment.
Oncor, the biggest owner and operator of power lines in Texas, is worth more than $10 billion, its chief executive officer said in April.
NextEra has emerged as the front-runner in the auction for the Oncor stake, people with knowledge of the matter said earlier this week. EFH could name Juno Beach, Fla.-based NextEra the stalking horse in the next few weeks, said the people, who asked not to be identified because the information is private.
NextEra has made a cash offer worth about $18 billion, according to two people familiar with the matter.
EFH may delay choosing a stalking horse to consider Friday’s proposal, said the person with knowledge of the Hunt bid.
The new proposal forces Energy Future to either go forward with the separate Oncor sale and fight creditors over how to reorganize the rest of the company, or try to settle the entire bankruptcy at once.
The group making the offer would raise cash through a sale of equity in the reorganized company, the person said. The money would be used to repay about $9.7 billion owed by Energy Future and its units that control the Oncor stake, according to the person.
The group would also spend about $2.4 billion to buy the 20 percent of Oncor that Energy Future doesn’t own and leave in place $6.3 billion in debt that Oncor owes independently, the person said. Adding in fees and other bankruptcy-related costs would raise the price of the deal to almost $19 billion, according to the person.
Hunt would contribute $1 billion to the deal and the creditors would raise $6.1 billion by selling equity in the reorganized Energy Future, the person said.
The equity sale would be backed with a guarantee from the creditors, including BlackRock Financial Management, Anchorage Capital Group and Arrowgrass Capital Partners, the person said.
BlackRock spokeswoman Paige Hofman declined to comment on the matter. Representatives of Anchorage and Arrowgrass didn’t return calls seeking comment.
The proposal also calls for about $5 billion of new debt and is meant to end the entire case, the person said.
The deal would still require approval from U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Del., who forced EFH to put Oncor on the block early in the bankruptcy.
EFH filed for creditor protection in April 2014, seeking to restructure $42 billion in debt by splitting itself in two, with senior lenders getting the generating side and a favored group of different creditors getting the Oncor stake.
That proposal was attacked by lower-ranking creditors who pushed for EFH to open up the bidding for Oncor.
To get senior lenders and the company’s private-equity owners to agree with the new plan, the lower-ranking creditors offered to drop legal claims against them, the person said.
http://www.dallasnews.com/business/headlines/20150612-energy-future-holdings-creditors-said-to-join-with-hunt-for-oncor-bid.ece
NextEra Said to Be Frontrunner for Energy Future’s Jewel (6/10/15)
NextEra Energy Inc. has emerged as the frontrunner in an auction for bankrupt Energy Future Holdings Corp.’s Oncor Electric Delivery Co., people with knowledge of the matter said.
Energy Future could name NextEra the stalking horse bidder for its 80 percent stake in Oncor, which is the biggest owner and operator of power lines in Texas, in the next few weeks, said the people, who asked not to be identified because the information is private. Oncor is worth more than $10 billion, its chief executive said in April.
Oncor is the crown jewel of Dallas-based Energy Future, which filed for Chapter 11 protection last April after taking on too much debt in a $48 billion leveraged buyout, the largest on record. Oncor is considered a prize because Texas is adding electricity customers and state regulators support power line investments. A squabble among creditors over the fate of Oncor derailed Energy Future’s plan to emerge from bankruptcy in less than a year.
“It’s a great regulated franchise and has good growth,” Kit Konolige, a utility analyst for Bloomberg Intelligence, said Wednesday in an interview. “NextEra has already done some transmission in Texas and they feel like they have some institutional knowledge in the state.”
NextEra’s pending $4.26 billion takeover of Hawaiian Electric Industries Inc., the archipelago’s power utility, shows willingness expand well beyond Florida, he said. Hawaiian Electric shareholders approved the merger Wednesday, according to a company statement.
Creditor Disagreement
Energy Future is still weighing separate proposals for Oncor and hasn’t made a final decision, one of the people said. Hunt Consolidated Inc. and some of Energy Future’s creditors have said they would convert Oncor into a real estate investment trust.
Allan Koenig, a spokesman for Energy Future, declined to comment. A representative for NextEra didn’t immediately respond to a request for comment.
The initial reorganization plan called for Oncor being spun off to a group of creditors with backing from Hunt, the energy conglomerate controlled by the Hunt family. NextEra interjected by partnering with another group of creditors and making an offer that valued Oncor at $17.5 billion. NextEra has a market value of about $44 billion.
That move prompted Energy Future to scrap its initial restructuring plan and hold an auction to select a stalking horse for Oncor. The subsequent process, which began about nine months ago, stalled as various holders of Energy Future’s more than $40 billion in debt have fought in court about how the company will pay them back.
Berkshire Hathaway
CenterPoint Energy Inc. and Berkshire Hathaway Inc. also signed non-disclosure agreements to bid for Oncor, people familiar with the matter said in September.
Stalking horses make the opening bid for assets sold in bankruptcy. They have an advantage over other bidders because they automatically win if no other bidders emerge. They can also get a breakup fee if they lose.
NextEra, based in Juno Beach, Florida, is the largest provider of electricity generated by wind and solar power in the U.S. It agreed in December to pay about $4.3 billion for Hawaiian Electric Industries inc.
http://www.bloomberg.com/news/articles/2015-06-10/nextera-said-to-be-frontrunner-for-energy-future-s-oncor-utility
Oncor Fourth Quarter and 2014 Investor Presentation (3/03/15)
http://www.oncor.com/EN/Documents/Investors/Q4%202014%20Earnings%20Call%20Deck%20Final%20v2.pdf
Oncor is a regulated electric transmission and distribution service provider serving 10 million customers across Texas.
Energy Future Files Reorganization Plan (4/14/15)
Plan outlines how the Texas energy company hopes to restructure $42 billion in debt and exit bankruptcy
By Peg Brickley
Energy Future Holdings Corp. filed a plan that outlines how the Texas energy company hopes to restructure $42 billion in debt and exit bankruptcy.
“The time is right to begin a determined march toward confirmation,” said Edward Sassower, the lawyer for the former TXU Corp., at a hearing in the U.S. Bankruptcy Court in Wilmington, Del., on Tuesday.
Confirmation by a judge that Energy Future’s plan meets legal requirements is required before the restructuring can take effect.
But creditors haven’t signed on to the Chapter 11 emergence proposal, which the company expects will see it out of bankruptcy before the end of the year.
Energy Future filed for Chapter 11 bankruptcy protection nearly a year ago after natural-gas prices fell to a level that made it impossible for the company to support its huge debt, the byproduct of a 2007 leveraged buyout.
The Dallas energy company’s latest bankruptcy-exit plan is a revamped form of an older version. It is based on splitting the company into two and carving off the electricity-production and retail business, Texas Competitive, as a separate company.
Energy Future’s valuable stake in Oncor, an electricity-transmission business, will either be sold to an outsider at auction, recapitalized in a creditor-backed deal, or some combination of the two, according to the plan.
Tuesday’s court hearing made it clear that Energy Future faces major hurdles in pushing the restructuring plan past a half-dozen groups of creditors. Lawyers for the various constituencies lined up in court to take their shots.
“No party has agreed to the debtor’s plan, and whether that plan as it evolves proves to be the key that unlocks consensus—which has proved elusive—remains to be seen,” said Alan Kornberg, lawyer for some of the company’s senior lenders.
“The consensus that we’ve reached is that we all hate the plan that’s been filed,” said Edward Weisfelner, lawyer for junior creditors of the electricity-production and retailing business, Texas Competitive.
Brian D. Glueckstein, lawyer for the official committee representing unsecured creditors of Energy Future, said his clients have concerns that the new plan represents “mere superficial progress.”
As the formal Chapter 11 exit process begins, Energy Future is forging ahead with the planned auction of its majority stake in Oncor, which has been described as its “crown jewel.” Immunized from Energy Future’s financial troubles, Oncor is run by separate managers and is overseen by regulators. A second round of bids for Oncor came in Monday night, Mr. Sassower said, and Energy Future is reviewing them.
Meanwhile, creditors of the Texas Competitive division have been putting together an alternative Chapter 11 plan that would involve a real-estate investment trust, said Brett Miller, a lawyer for the official committee of unsecured creditors of the Texas Competitive unit.
Pulling off the REIT-based restructuring will require raising “many billions of dollars of debt and equity,” Mr. Weisfelner said. The effort would be worthwhile for Texas Competitive’s junior creditors, which are in line to recover far less than some of the company’s other junior creditors, he said.
If creditors can raise $11 billion, they can create a REIT within the Chapter 11 process to capture the value of Oncor rather than allowing outsiders to buy control of the business, said Christopher Shore, a lawyer for Texas Competitive junior bondholders.
“A deal can get done,” Mr. Shore said at Tuesday’s court hearing.
Proposed settlements of many of the disputes that have divided Energy Future’s creditors are built into the latest plan, which must undergo several stages of testing in bankruptcy court before being implemented.
One proposed settlement involves an offer of up to $805 million from the division that owns 80% of Oncor to the Texas Competitive division. Agreed on by the company’s top officials, the settlement is just a proposal as far as creditors are concerned.
Energy Future is also campaigning for a tax-free spinoff of Texas Competitive, which would form a stand-alone company owned mostly by the top-ranking lenders. Top-ranking lenders have been threatening to split the company in two in a way that would leave other Energy Future creditors saddled with a multibillion-dollar tax bill. Any such move could set off a volley of litigation that could keep Energy Future in court for years, some creditors have said.
http://www.wsj.com/articles/energy-future-files-42-billion-chapter-11-reorganization-plan-1429018731?KEYWORDS=energy+future+holdings
Battle over carcass of Energy Future Holdings heats up (2/17/15)
http://www.ft.com/cms/s/0/755e3422-b3d2-11e4-a6c1-00144feab7de.html#ixzz3Ss4X3k7X
Hunt family’s InfraREIT power line IPO jumps right out of the gate (1/30/15)
InfraREIT, the power line company launched by Dallas billionaire Ray L. Hunt’s energy and real estate conglomerate, quickly blew past market projections during its New York Stock Exchange debut Friday, closing at $26.60 a share.
The initial public offering was priced at $23 a share — itself a premium over estimates put out just this week, when the company was expected to raise $483 million. By the end of the day, InfraREIT’s market cap had reached $1.2 billion.
The IPO comes as InfraREIT sets out to expand its power line business across Texas, New Mexico and Arizona, states with growing populations where demand for wind and solar farms is expected to draw heavy investment in the years ahead.
“Regional renewable energy generation is expected to double in the next 10 years in Arizona and New Mexico to meet renewable portfolio standards, which we believe will provide transmission investment opportunities,” InfraREIT said in a securities filing this week.
More immediately, Hunt Consolidated is vying to buy Oncor, Texas’ largest power transmission company. Parent company Energy Future Holdings filed for bankruptcy in April and is putting Oncor up for auction, a sale that it expected to fetch upwards of $17 billion.
With 10 million customers and 119,000 miles of power lines, Oncor would offer a major upgrade to InfraREIT’s stables. Set up as a tax-friendly structure that owns but does not operate power lines, InfraREIT counts 11,000 miles of transmission and distribution lines across Texas.
But the Hunts face competition. Florida power giant NextEra Energy and the Houston utility CenterPoint Energy are also expected to bid. And Warren Buffett’s Berkshire Hathaway Energy has expressed interest.
“Oncor is a very attractive asset. You could see that asset getting bid up pretty high,” said Andrew Bischof, a utility analyst with the research firm Morningstar.
InfraREIT’s IPO, under the ticker symbol HIFR, marked an unusually public display for the Hunts, who have famously kept their oil company and larger Hunt Consolidated out of the stock market.
With oil drilling operations, ranching and real estate holdings around the globe, Hunt Consolidated dates to 1934, when patriarch H.L. Hunt was building his oil empire. Forbes lists it as among the 100 largest private companies in the United States, with estimated revenue of $4.5 billion.
“The Hunts have always played their cards close to the vest,” said Jerome Tuccille, who wrote about the family in his 1984 book Kingdom. “H.L. Hunt was adamant about keeping his companies private ... he didn’t like the idea of coming up with quarterly earnings reports to satisfy the SEC.”
Ahead of the IPO, InfraREIT had to open its books and disclose the details of its operations. It reported $42.4 million in profit on revenue of $72.3 million in 2013. Existing investors include Tokyo-based Marubeni Corp., John Hancock Life Insurance Co. in Boston, the Canadian pension fund OpTrust Infrastructure N.A. and the Teachers Insurance and Annuity Association of America.
Five years after its founding, InfraREIT is seeking to expand at a time when power line companies are becoming much sought after by investors.
New federal regulations targeting carbon dioxide emissions are expected to expand solar and wind development, requiring infrastructure buildout. And with government-regulated profits, transmission is viewed as a safe investment within the volatile energy sector.
“Our view is the hidden winners of the clean energy plan are the transmission companies,” analyst Bischof said. “You’re going to see a significant amount of new transmission coming online.”
http://www.dallasnews.com/business/energy/20150130-hunt-familys-infrareit-power-line-ipo-jumps-right-out-of-the-gate.ece
Bankruptcy judge OKs Energy Future Holdings to move ahead on Oncor auction (1/14/15)
A U.S. bankruptcy judge told Texas power giant Energy Future Holdings on Wednesday that it can move ahead on auctioning off its transmission arm, Oncor.
Judge Christopher Sontchi set the deadline for opening bids for March 2. The process is expected to stretch through the summer and attract some of the largest players in the Texas power industry.
Companies that have expressed interest in Oncor, which maintains Texas’ largest power line network, include Hunt Consolidated, the Dallas energy company led by billionaire Ray L. Hunt, Florida-based power giant NextEra Energy and Houston utility CenterPoint Energy.
EFH filed for bankruptcy in April, seeking protection from $40 billion in debt largely amassed during a 2007 leveraged buyout by private equity firms KKR & Co. and TPG. EFH announced it was putting Oncor up for auction in August after Hunt and NextEra offered competing bids for the company. EFH CFO Paul Keglevic put the value of NextEra’s bid at $18 billion.
In November, Sontchi put a halt to the process, telling EFH it was moving too quickly and had failed to work with creditors. Tuesday the power company filed a motion arguing it had carried out the judge’s orders and requested that the auction process resume.
An EFH spokesman declined to comment Wednesday.
http://www.dallasnews.com/business/energy/20150114-bankruptcy-judge-oks-energy-future-holdings-to-move-ahead-on-oncor-auction.ece
Energy Future Holdings given conditional OK to take Oncor bids (11/03/14)
Nov 3 (Reuters) - Bankrupt power company Energy Future Holdings Corp received conditional court approval to accept bids for its majority stake in Oncor, a power transmission company in Texas worth billions of dollars.
Delaware Bankruptcy Judge Christopher Sontchi said on Monday Energy Future could begin accepting bids once it had changed the way affiliates approved of the plan to sell Oncor. He also said the bidding process must involve the two official creditors committees and the time frame for the sale should be extended.
"We are not reinventing the wheel here," said Sontchi as he read Monday's ruling following four days of testimony and argument that ended last week.
"The immense size of this case and $18 billion asset is certainly unusual and the involvement of public companies as bidders is a complicating factor. But there is no reason to depart from established practices that have developed for selling an asset in bankruptcy," the judge said.
Creditors had objected to the proposed process because it involved sealed bids to choose an initial bidder, known as a stalking horse. Once the stalking horse was chosen, Energy Future planned to have an open auction when all bids could be reviewed by participants.
Sontchi said Energy Future would have to allow the participation of the two official creditors committees in the selection of a stalking horse bidder. The company originally set a deadline for final bids for the role of stalking horse on Nov. 21, which Sontchi said would have to be extended.
Sources have told Reuters that potential bidders include NextEra Energy Inc of Juno Beach, Florida; Hunt Consolidated Inc of Dallas; and Houston-based CenterPoint Energy Inc.
Oncor, which is not bankrupt, distributes power to 3 million homes in Texas and operates 120,000 miles of power lines. Energy Future owns 80 percent of Oncor, but it is not selling the stake directly. Instead, the auction will determine the right to own Energy Future's equity when it exits bankruptcy.
As a result, the sale is dependent on Energy Future's confirmation of a plan of reorganization, which it expects to do by the end of 2015. Creditors complained that the Oncor sale, and spin-off of other valuable assets, locked Energy Future into a plan without negotiating with many of its creditors.
Energy Future plans to spin off its Luminant power generating business and its TXU Energy retail electricity supplier to the senior creditors of those units, which are owed $24 billion.
Energy Future took on much of its debt in 2007 in the record buyout of TXU Corp, was led by KKR & Co, TPG Capital Management [TPG.UL} and the private equity arm of Goldman Sachs Group Inc.
The case is Energy Future Holdings Corp, U.S. Bankruptcy Court, District of Delaware, No. 14-10979. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Meredith Mazzilli and Steve Orlofsky)
http://www.reuters.com/article/2014/11/03/energyfutureholdings-bankruptcy-oncor-idUSL1N0ST1Y520141103
Judge rules EFH can proceed with Oncor auction, but with conditions (11/03/14)
By James Osborne
Energy Future Holdings’ plan to get out of bankruptcy court next year was struck another blow Monday when a federal bankruptcy judge further delayed the auction of its power transmission arm Oncor.
The Dallas-based power company must now negotiate with creditor committees as to the timing and rules of the auction. U.S. Bankruptcy Judge Christopher Sontchi did not set a time line, but the ruling could potentially delay the auction a couple months.
EFH filed for bankruptcy in April, seeking protection from $40 billion in debt largely amassed during a 2007 leveraged buyout led by private equity firms KKR & Co. and TPG. With agreements in place with a number of creditors, EFH executives had hoped for a quick, 11-month trip through bankruptcy court that would end with Energy Future’s generation, retail and transmission subsidiaries being split up between creditors.
But the sale of Oncor, which boasted a $335 million profit last year, has proved a contentious issue with creditors who would see little return under EFH’s restructuring plan.
Sontchi stopped short of ordering EFH to come up with a new reorganization plan, as some creditors had argued for.
“There is nowhere near a sufficient record to strike down” the proposed reorganization plan, he said.
But Sontchi did admonish EFH for efforts attempting to change the bidding procedure, which the judge called, “frankly offensive.” And he ordered a longer time line to allow parties so far left out of the auction process to come up to speed.
“It’s half a loaf,” said attorney Ed Weisfelner, who is representing one of the creditors groups challenging EFH. “This does portend a lot of potential challenges for the debtors on moving forward on their very myopic game plan. But they’re still being given some deference by the court.”
A spokesman for EFH declined to comment on the ruling.
Oncor, as a regulated business, has avoided the steep declines felt by much of the Texas power sector in recent years.
Under a deal cut in the run-up to bankruptcy in April, the company was supposed to be taken over by a creditors’ group in league with Hunt Consolidated and the Teacher Retirement System of Texas.
But Florida-based power company NextEra Energy, which already owns power plants and power retailer Gexa Energy in Texas, upset that deal with its own bid. In court last month Energy Future chief financial officer Paul Keglevic put the value of that bid at $18 billion.
In August, EFH decided to open bidding up to the public with the possibility of extracting an even higher bid. According to sources, CenterPoint Energy in Houston and Warren Buffett’s Berkshire Hathaway, along with Hunt and NextEra, have also signed up to review confidential financial information on Oncor.
“We will continue to watch the process closely over the next several weeks and months,” Jeanne Phillips, senior vice president at Hunt, said in a statement.
The first round of bidding was originally scheduled to close Oct. 23 with the final auction to take place in February.
http://bizbeatblog.dallasnews.com/2014/11/69933.html/
InfraREIT, LLC
Created in 2010, InfraREIT was originally known as the Electric Infrastructure Alliance of America, LLC, and was formed as a REIT to invest in companies that own and develop electric transmission and distribution utility assets, the first of its kind in the United States.
InfraREIT’s subsidiary, Sharyland Distribution and Transmission Services, LLC (SDTS), currently owns electric transmission and distribution assets that serve approximately 50,000 customers in 29 counties throughout Texas. These assets are leased to and operated by Sharyland Utilities, L.P., a Texas-based public electric utility that is fully regulated by the Public Utility Commission of Texas. These assets include:
•~ 9,900 miles of distribution lines
•~ 620 miles of transmission lines
•35 substations
•300 MW High Voltage Direct Current (HVDC) Interconnection between the electric grids of Texas and Mexico
http://www.huntutility.com/overview.html
Hunt utility trust announces IPO (11/10/14)
By James Osborne
The real estate trust that owns the power assets of the family of Dallas billionaire Ray L. Hunt on Monday announced plans to hold an initial public offering.
The move by InfraREIT Inc. comes as the Hunts position themselves to bid on Texas’ largest power line company, Oncor. Oncor is expected to go up for auction next year after the bankruptcy filing last April of current owner Energy Future Holdings.
Ahead of that filing Hunt had partnered with a key group of EFH creditors to take control of Oncor once bankruptcy was completed. But that restructuring plan was scuttled when Florida-based NextEra Energy stepped in with an offer that has been valued at $18 billion. The Hunts’ offer has not been made public.
Last week U.S. Bankruptcy Judge Christopher Sontchi delayed the Oncor sale when he ordered EFH to work with creditors on establishing an auction process not likely to start before the beginning of 2015.
InfraREIT is run by CEO David Campbell, the former EFH executive who was hired by Hunt in July. The company said it had yet to determine the number and price of shares or the timing of the stock offering.
http://www.dallasnews.com/business/energy/20141110-hunt-utility-trust-announces-ipo.ece
Any thoughts on why the TXU unsecured bonds are rising? Is there that much value left after the 1st lien and even the 2nd lien on the unregulated portion of the business?
Looking To Shed $40B In Debt, Energy Future Holdings (TXU) Files Ch. 11 (4/29/14)
Energy Future Holdings filed for Chapter 11 protection in Wilmington, Del., this morning, after reaching a long-awaited deal with creditors on a restructuring that would shed about $40 billion in debt.
Energy Future said it expects confirmation of the plan will take about nine months, with a Chapter 11 exit expected in 11 months. The company said it has secured two debtor-in-possession credit facilities: $4.475 billion for Texas Competitive Electric Holdings Company, and $7.3 billion for Energy Future Intermediate Holding Company.
The pre-arranged restructuring plan, which EFH said it expects to file “in the near term,” will separate Texas Competitive Electric Holdings and its subsidiaries from Energy Future Holdings without triggering any material tax liability, the company said. TCEH’s first-lien lenders will receive all equity in reorganized TCEH and the cash proceeds from new debt issued by TCEH in exchange for eliminating about $23 billion of TCEH’s funded debt.
At Energy Future Intermediate Holding Company, the holding company for Oncor Electric Delivery Company, EFH’s regulated business, the plan would eliminate about $2.5 billion of EFIH’s funded debt through a capital infusion of up to $1.9 billion from certain EFIH unsecured note holders, EFH said. The capital will convert, along with all EFH and EFIH unsecured notes, into equity in reorganized EFH when the company exits Chapter 11. Certain EFIH unsecured note holders will also receive cash under the plan, the company said.
At EFH, the plan will eliminate about $600 million of funded debt. The reorganized EFH will continue to own EFIH, and EFIH will retain its interest in Oncor.
The newly filed case has already prompted a battle over the company’s choice of bankruptcy venue. Wilmington Savings Fund Society, the trustee for TCEH’s second-lien notes, filed a motion this morning seeking to transfer the case from Wilmington to the bankruptcy court in Dallas, a “nine-minute walk” from EFH headquarters.
Kirkland & Ellis is serving as EFH’s lead bankruptcy counsel. Evercore Partners is serving as financial advisor, with Alvarez & Marsal as restructuring advisor. — John Bringardner
http://www.forbes.com/sites/spleverage/2014/04/29/looking-to-shed-40b-in-debt-energy-future-holdings-txu-files-ch-11/
For Energy Future Holdings, a colossal collapse but limited pain for buyout’s architects (4/28/14)
When Energy Future Holdings files for bankruptcy, the two private equity firms that engineered the $45 billion buyout of the former TXU Corp. are expected to see their stake reduced to virtually nothing.
But what might be devastating for other financial firms has done little damage to KKR & Co.’s and TPG’s positions as the private equity titans of Wall Street.
According to experts and private equity insiders, the two firms managed to minimize the hit to their balance sheets and reputations through a strategy to shrink their exposure and that of their investors if the 2007 buyout went south.
The firms put only a fraction of their own money into the deal. They collected hundreds of millions in fees along the way. And their investors made money even when losses at EFH started piling up.
“It gives them a black eye. But it’s in the context of one bad investment, and they have many other good investments,” said Don Shelly, a professor at SMU’s Cox School of Business. “They’re going to take a hit, but they were smart enough to syndicate it out and not take too big a piece themselves.”
To buy EFH, Texas’ largest power company, KKR, TPG and Goldman Sachs Capital Partners, which came later to the deal, had to come up with $8 billion in equity to complement close to $25 billion in loans and bond offerings they pulled together.
Spreading the risk
According to filings with the U.S. Securities and Exchange Commission at the time of the merger, the firms pulled together up to $3.7 billion of that equity from sources including Morgan Stanley, Citibank and their own existing clients.
The rest would have come from the three firms, primarily from the private equity funds they sell to investors, which spread money across a variety of deals.
Exactly how much came out of the firms’ own pockets is not made clear in securities filings. But KKR, which as a publicly traded company must disclose its financials, reported that the firm’s own exposure to the deal amounted to just $200 million. The firm, which recorded $7.9 billion in profits in 2013, has since written that investment down to $10 million.
But KKR, TPG and Goldman Sachs have collected more than $300 million in management fees and debt restructuring payments from Energy Future since the buyout, according to SEC filings. And the firms also shared with the now-closed investment firm Lehman Brothers a $300 million transaction fee at the time of the merger.
Such fees are standard in leveraged buyouts, intended to cover all the costs associated with the deal and the firms’ own overhead. But they probably have also served to reduce the losses suffered by KKR on its $200 million investment and by TPG and Goldman Sachs on the unknown sums they invested in the deal.
“It’s hard for me to figure out who the loser is here other than the big [creditors groups] who put the money behind the deal,” said Geoffrey Gay, an attorney with the Texas Coalition for Affordable Power, which acts as a watchdog on the power sector.
“I’m not sure the people who put the deal together are going to lose all that much. … Are they losing their shirt? I don’t think so.”
A spokesman for the three private equity firms declined to comment for this article.
Investors insulated
But the firms show little sign of damage from their failed bet on Texas’ largest power utility.
KKR, which revolutionized the private equity world with the takeover of RJR Nabisco in the 1980s, has watched its stock price more than double since it went public in 2010.
TPG, the global firm headquartered in Fort Worth, raised more than $35 billion from investors over a five-year period ending in 2013, more than any other private equity firm, according to the magazine Private Equity International. And analysts say the firm could double the estimated $2.4 billion it and its partner paid for the clothing retailer J. Crew in 2011.
Their reputation was in many ways protected by the fact that their investors, who would have put up much of the $8 billion in equity, still managed to turn a profit on the deal.
The equity came primarily from two separate funds, named KKR 2006 Fund and TPG Partners V. Even with the Energy Future losses, those funds were diversified enough to keep them in the black.
According to the Oregon Public Employees Retirement Fund, which invested in both funds and makes public its investment performance, the KKR fund has on average produced a 7.7 percent annual return on the retirement fund’s $1.3 billion investment.
The TPG fund on average produced a 1.2 percent rate of return for the pension fund’s $300 million investment.
But any investment fund that operated through the 2008 financial crisis would have performed below industry standards. Of the 30 private equity funds in which the Oregon pension fund invested in 2006, the average rate of return was less than 5 percent.
Warren Buffett’s lament
The majority of the losses in the Energy Future buyout have come among the financial houses that either loaned EFH money or purchased its bonds. Debt on the company’s unregulated business has been trading for between 72 cents and 3 cents on the dollar, according to a report in March by the research firm Credit Sights.
Last month, financial guru Warren Buffett told Berkshire Hathaway investors that his close to $2 billion bet on Energy Future bonds had lost the company $873 million.
“Most of you have never heard of Energy Future Holdings,” Buffett wrote in his annual shareholders letter. “Consider yourselves lucky; I certainly wish I hadn’t.”
For now, the private equity industry’s top firms appear to be backing off the big-dollar deals like those that defined the years in the run-up to the financial collapse.
At a meeting with the Oregon pension fund earlier this year, TPG co-founder James Coulter said the firm had shifted strategy to focus on smaller deals.
“We have returned to what private equity does well after a period of time in which the industry did a lot of large deals with kind of mixed results,” he said.
How long that strategy will remain in place is unclear. But Shelly, the SMU professor, said he did not expect it to last long.
“These things are cyclical,” he said. “They’re saying that now, but it will come back. When you’re a big player, you have to have big deals to move the dial. How many $2 billion deals are you really going to do?”
http://www.dallasnews.com/business/energy/20140426-for-efh-a-colossal-collapse-but-limited-pain-for-buyouts-architects.ece
Clock ticking, bankruptcy near for Energy Future Holdings (4/25/14)
Negotiations to determine the fate of Energy Future Holdings are expected to continue through the weekend ahead of a critical deadline next week.
With close to $40 billion in debt and a shrinking revenue base, EFH has long said it will have to file for bankruptcy eventually. Now the company is in talks with creditors in hopes of working out a final-hour debt restructuring deal that minimizes the power company’s time in court.
But time is running out. The company delayed a $109 million interest payment April 1, and if they don’t pay by Wednesday they go into default. At that point its creditors could call in their debt, leaving EFH with little choice but to file for bankruptcy.
Allan Koenig, a spokesman for EFH, declined to comment on the status of negotiations or the likely timing of the bankruptcy filing. And reports from the negotiating table have been mixed.
Bloomberg News reported this week that the EFH board was considering two proposals, one that leaves out a key creditor, Boston-based Fidelity Investments. In earlier reports Fidelity seemed to be coming on board with a deal.
One observer with ties to the company said this week that predicting how this will turn out is impossible, as negotiations seemed to ebb and flow so frequently.
That has been the case throughout the long wind-up to bankruptcy, but now analysts doubt EFH will reach a consensus deal with creditors.
“I’d still be surprised if they can pull this off without any objections from the seven layers of creditors across the whole capital structure,” Andy DeVries, an analyst with the research firm CreditSights, said in an email last week. “It seems like tax implications are keeping the whole thing together rather than the TCEH guys seizing the power plants and walking away the day they file.”
According to sources close to the talks, EFH has been considering splitting the company’s regulated transmission arm from its unregulated power generation and retail businesses, Luminant and TXU Energy.
Creditors on the regulated side have pushed to go their own way, likely selling off the transmission company Oncor to the highest bidder.
EFH has long maintained such a move would trigger a bill from the U.S. Internal Revenue Service in the billions. But earlier this year, sources said attorneys involved in the talks might have found a way to reduce the company’s tax exposure should it split apart.
Follow James Osborne on Twitter at @osborneja.
http://www.dallasnews.com/business/energy/20140425-clock-ticking-bankruptcy-near-for-energy-future-holdings.ece
EFH reportedly looks at two debt restructuring offers (4/25/14)
Energy Future Holdings Corp.’s directors met Thursday to consider two creditor proposals for reorganizing the power producer in bankruptcy, with or without the blessing of one of its biggest lenders, according to two people with knowledge of the talks.
The board is seeking a plan that would reduce the amount of time it takes to restructure the company’s $45.4 billion of debt in Chapter 11 proceedings. One of the plans wouldn’t include Fidelity Investments, which has been a key holdout, said the people, who asked not to be identified because the discussions are private.
The electricity provider formerly known as TXU Corp., which KKR & Co., TPG Capital and Goldman Sachs Group Inc.’s private-equity arm took private in 2007 in the largest-ever leveraged buyout, is racing to finish up the talks before May 1, when it would be considered in default, accelerating repayment of its obligations.
A bankruptcy blueprint would limit the chaos of a free-for-all filing and may allow the company to avoid triggering a tax bill that could exceed $7 billion.
Under terms being discussed, Fidelity would get almost 40 cents on the dollar in cash for notes it holds in the parent company of the power producer, one of the people said.
The Boston-based money manager had rejected a previous offer for a debt swap valued at 10 cents on the dollar, according to a Nov. 1 filing with the U.S. Securities and Exchange Commission.
Anonymous 'Big Boy' Bond Buyer Bids Up Energy Future Debt (4/10/14)
Bonds of Energy Future Holdings Corp.’s regulated unit jumped 9 cents on the dollar this week as the power producer negotiates a pre-arranged bankruptcy plan with its creditors.
Energy Future Intermediate Holding’s $1.57 billion of 11.25 percent notes due December 2018 rose 1.94 cents on the dollar to 81.6 cents at 11 a.m. in New York, according to prices compiled by Bloomberg. Those bonds were quoted at 72.4 cents April 4.
A plan is being discussed by Energy Future’s owners, the company’s management and holders of the electricity provider’s $45.6 billion of debt. The proposal would reduce the amount of time it takes to restructure in Chapter 11, limit the chaos of a free-for-all filing and allow the company to avoid a tax bill that could exceed $7 billion.
One potential buyer of the notes has presented a so-called Big-Boy Letter, indicating to possible sellers the firm has material non-public information and may be party to the negotiations, according to two market participants with knowledge of the matter.
Allan Koenig, a spokesman at the Dallas-based company, declined to comment on the price move.
Energy Future’s acquisition at the peak of the 2007 buyout boom by private-equity firms including KKR & Co., TPG Capital and Goldman Sachs Capital Partners was essentially a bet, using $40.1 billion of debt and an $8.3 billion equity check, that natural gas prices would rise. Instead, prices have fallen 65 percent since July 2008. Gas prices set the cost of electricity in the Texas market.
To contact the reporter on this story: Richard Bravo in New York at rbravo5@bloomberg.net
http://www.bloomberg.com/news/2014-04-10/energy-future-bonds-surging-as-bankruptcy-negotiations-progress.html
Energy Future Holdings, key creditors move closer to talks as bankruptcy looms (3/26/14)
Efforts to reach a deal with creditors ahead of an Energy Future Holdings bankruptcy have regained steam.
A critical group of the power company’s debt holders have signed confidentiality agreements with EFH, giving them access to confidential financial records and opening the door to direct negotiations with the company, according to sources close to EFH.
The final-hour rush to find common ground before going to court comes seven years after EFH, formerly TXU Corp., was bought out for $45 billion. Led by private equity firms KKR & Co., TPG and Goldman Sachs Capital Partners, the deal has since struggled amid falling power prices in Texas and what became an unsustainable debt load.
Allan Koenig, a spokesman for EFH, declined to comment on the talks. Tom Johnson, a spokesman for the private equity firms, also declined to comment.
EFH is expected to file for bankruptcy in the weeks ahead as critical deadlines loom.
The company is scheduled to file its annual earnings report by March 31. It needs an auditors’ opinion saying it can continue payments on its more than $30 billion debt load. It is not expected to get that, which would trigger bankruptcy. But the company can apply for a 15-day extension and could choose to delay the filing beyond even that.
Also, EFH is scheduled to make interest payments totaling $109 million on April 1, according to a filing with the U.S. Securities and Exchange Commission. The payment carries a 30-day grace period, but after that, the thinking is the company would have to file for bankruptcy or make the payments, something it is not going to do at this late stage, a source close to the company said.
For senior creditors like those now at the negotiation table, there is motivation to reach a deal and avoid a contentious bankruptcy process, said Don Shelly, a professor at SMU’s Cox School of Business.
“They don’t want to drive too hard a bargain and risk the judge giving the lesser creditors a better deal than you would have,” he said. “There’s a lot of players, a lot of egos.”
The signing of the confidentiality agreements was first reported by The Wall Street Journal. It named Apollo Global Management, Centerbridge Partners and Oaktree Capital Management, which own debt in EFH’s power generation and retail arm, as among the firms that signed the agreements.
Also named were Avenue Capital Group, GSO Capital Partners and York Capital Management, which own debt in Energy Future Intermediate Holdings, which owns the transmission company Oncor.
The two groups of debt holders were reportedly at odds last year over how to value the two segments of the company and tax issues with separating them, critical aspects to figuring out how the creditors would be paid out in a debt restructuring.
http://www.dallasnews.com/business/energy/20140326-energy-future-holdings-key-creditors-move-closer-to-talks-as-bankruptcy-looms.ece
Oncor the shining light during dark times at EFH (3/24/14)
Remember when utilities were so safe and steady that the investments were recommended for widows and orphans?
Oncor Electric Delivery Co. is a throwback to that time, despite being part of a doomed leveraged buyout.
While its largest owner, Energy Future Holdings, veers toward bankruptcy, Oncor keeps growing revenue and profit, and investing heavily in infrastructure.
Last year, as EFH struggled to hold off creditors, Oncor paid $310 million in dividends and still invested more than $1 billion in capital improvements.
EFH may be running out of cash after its 2007 buyout of TXU Corp., but Dallas-based Oncor might as well be operating in another world.
Credit Texas-style regulation, which includes a legal “ring-fence” that protects Oncor and ensures its independence.
The rules set limits on dividends, debt-equity ratios and the composition of the board. Independent directors hold a majority of board seats.
The best example of Oncor going its own way: In recent years, it spent almost $2 billion on new transmission lines to West Texas.
The investment resulted in smaller dividends for several years, when EFH could have used the extra cash. The new transmission lines also strengthened wind power in the state, putting downward pressure on electricity rates.
While lower rates benefit consumers, they hurt power generators like EFH’s Luminant, the largest in the state.
How to balance the trade-off? Oncor didn’t have to worry about it because it’s truly independent. Officials even refer to EFH as an investor, not a parent company, because EFH doesn’t have control.
In a 10-K filing, EFH said it depended on Oncor for a significant amount of cash flow from dividends. But EFH said it has “a very limited ability to control” Oncor’s activities.
Oncor provides the poles and wires that deliver electricity to almost 3.3 million Texas customers, the most in the state. It earns a guaranteed return on investments approved by regulators, and it’s been building and collecting.
In addition to the transmission lines, Oncor spent $660 million on smart meters. Oncor expects to get $1 billion in surcharges on the meters over an 11-year period.
In 2013, Oncor’s operating revenue increased almost 7 percent, the fourth straight year at that pace. Operating income grew at a similar rate. And Oncor said it will continue capital spending at more than $1 billion annually for the next five years.
EFH’s bankruptcy may put Oncor into play, as investors try to recover more of their losses by selling pieces. With a growth market and favorable regulatory environment, Oncor is a premium asset, according to Moody’s Investors Service.
“So the list of interested buyers would probably be as long as a West Texas country mile,” analyst Jim Hempstead wrote in a report in October.
Investors would range from energy companies to pension funds. They’ll be drawn by the potential of locking up $300 million in annual dividends for years to come. Some have compared buying Oncor to buying a huge annuity because the business is so reliable.
Besides steady growth, Oncor offers a safe play in the energy industry. Luminant and EFH’s electricity retailer, TXU Energy, have been buffeted by broader trends in the competitive market.
Power prices have plunged, largely from the abundance of natural gas with shale drilling. And TXU Energy has lost 400,000 residential customers since 2008, as many switched from the incumbent retailer to new entries with lower-price plans.
Oncor has taken other steps to separate itself further from EFH. In 2008, almost 20 percent of Oncor was sold to a group that includes a Canadian pension fund and the Singapore government. A small stake was also sold to Oncor management, and dividends are shared among the owners.
Hempstead estimated that Oncor is worth about $8 billion and said the figure could go higher if a strategic buyer could acquire all of the company. But he believes the minority investors would be unwilling to sell their stake, even at a high price.
Last year, about half the increase in Oncor revenue came from pass-through expenses that it collects for third-party transmission services and others. The other half came from growth in customers and consumption, and higher revenue from transmission improvements.
In 2009 and 2010, Oncor’s customer base grew less than 1 percent, but revenue kept cranking. Since the buyout, Oncor’s annual revenue has grown 42 percent. In roughly the same time, EFH revenue has fallen by half.
Strong results at the regulated utility have become almost routine.
“2013 was another very good year for Oncor,” CEO Robert Shapard told analysts a month ago.
In the energy business, nothing’s closer to a sure thing.
http://www.dallasnews.com/business/columnists/mitchell-schnurman/20140324-oncor-the-shining-light-during-dark-times-at-efh.ece
Warren Buffett admits to $873 million investment mistake (3/01/14)
Investment tycoon Warren Buffett admitted to a rare investing blunder, saying that he regretted buying stock in a utility company without consulting his second-in-command
NEW YORK, NY -- Warren Buffett admitted he made a "big mistake" investing in bonds of a utility company called Energy Future Holdings, which has since filed for bankruptcy. The investment tycoon, ranking number four on the world's richest list, made his rare admission of having made a mistake to in a letter addresses to shareholders of his Berkshire Hathaway investment fund.
Energy Future is Texas's largest electricity provider and was purchased in 2007 in the largest leveraged buyout in history.
Buffett explained he made the $2 billion investment "without consulting with [business partner and second-in-command] Charlie Munger".
"Most of you have never heard of Energy Future Holdings. Consider yourselves lucky; I certainly wish I hadn't," Buffett, 83, said. "Next time I'll call Charlie."
He admitted he had to sell the bonds for a mere $259 million, leaving Berkshire with a $873 million pre-tax loss after taking interest payments into account.
Buffett wrote that unless natural gas prices suddenly skyrocket, EFH will "almost certainly" file for bankruptcy protection this year.
http://www.onenewspage.us/n/Business/750cmxz2r/Warren-Buffett-admits-to-873-million-investment-mistake.htm
Energy Futures Holdings considers breaking up company (2/21/14)
Energy Future Holdings, Texas’ largest power company, is preparing for a possible breakup as negotiations with creditors to avoid a bankruptcy filing continue to drag out.
It is one of a number of possible scenarios under discussion, according to sources close to the talks. But with some creditors pushing to split the company and the time frame for reaching a deal shrinking, pressure on EFH is growing.
The potential breakup of Energy Future comes as the power industry at large struggles through a sharp drop in wholesale power prices since 2010. The former TXU Corp. has been in talks with creditors since last year over more than $40 billion in outstanding debt the company has said it will not be able to repay.
If a deal cannot be reached, a Chapter 11 bankruptcy filing is expected in late March or early April.
EFH declined to comment on the development in negotiations, which was first reported by The Wall Street Journal.
A bankruptcy filing would represent a dramatic failure of what has been described as the largest leveraged buyout in U.S. history, orchestrated by private equity firms KKR & Co., TPG and Goldman Sachs Capital Partners in 2007. But after power prices collapsed following huge increases in U.S. natural gas supplies through hydraulic fracturing, EFH’s debt load quickly became unmanageable.
CEO John Young has argued publicly against splitting up the company and its subsidiaries, Luminant, Oncor and TXU Energy. But he is facing creditors groups eager to extract as much value as they can from investments in some cases now worth pennies on the dollar.
The scenario under discussion would split EFH’s competitive arm, which controls generator Luminant and retailer TXU Energy, from its regulated arm, which controls transmission company Oncor.
Energy Future is in the process of setting up two $4 billion loans for each of the divisions to allow them to continue operating through bankruptcy separately.
But a source close to EFH cautioned that the company has no plans to cut a deal for the breakup before filing for Chapter 11. And once the case goes to court, the company will continue to lobby to keep its subsidiaries together.
http://www.dallasnews.com/business/energy/20140220-energy-futures-holdings-considers-breaking-up-company.ece
Lengthy bankruptcy looking more likely for Energy Future (2/20/14)
By Nick Brown
Feb 20 (Reuters) - Efforts to negotiate a consensual restructuring at Energy Future Holdings, the embattled Texas utility, are looking bleaker, and a long bankruptcy is becoming the most likely option, according to several people close to the matter.
The company, struggling under about $40 billion in debt, had hoped to have the framework of a restructuring deal in place before filing for bankruptcy, which would save time and legal costs. But with time running out before potential defaults and no deal close, a so-called "free-fall" bankruptcy is looking more likely, said three people close to the matter on Thursday, and who declined to be named because talks are private.
A bankruptcy would likely result in the breakup of the company, though it is unclear exactly how it would be broken up, two of the people said. Energy Future Holdings has not given up on the prospect of keeping the company together, said one of the people.
One major obstacle in restructuring talks, according to two of the people, is a dispute over whether holders of senior loan debt are entitled to a tax basis "step up," which would allow them save on tax payments post-bankruptcy based on a higher depreciable tax base.
The company is in talks for a roughly $4 billion loan to fund its regulated holding company through bankruptcy, said another person close to the matter.
Its unregulated holding company is also in talks for a bankruptcy loan with a consortium that includes Citigroup, said one of the people.
The Wall Street Journal first reported that Energy Future was preparing for a breakup and in talks for a bankruptcy loan.
Energy Future Holdings was created in October 2007 in a $45 billion buyout of Dallas-based TXU Corp, the biggest electricity generating and distribution company in Texas.
The buyout, led by KKR & Co, TPG Capital Management LP and the private equity arm of Goldman Sachs, saddled the company with debt just as natural gas prices were about to plunge, making its coal-fired plants unprofitable.
Many industry experts believed the company would choose to skip a $270 million interest payment and file bankruptcy last November, but the company chose to make the payment, extending its runway for restructuring talks.
Its next day of reckoning may be fast approaching. Sometime this month or next, Energy Future expects to receive an opinion from auditors on whether it can survive as a going concern based upon its annual financial statements. It may have trouble convincing auditors to grant a positive opinion, given that it does not have enough cash to afford the $3.8 billion of bank debt that matures in October. Failure to secure such an opinion would trigger a default of EFH's $20 billion of bank debt, meaning lenders could push the company into bankruptcy.
http://www.reuters.com/article/2014/02/21/efh-restructuring-idUSL2N0LQ00F20140221
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