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[Enterprising Investor]

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/