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Thursday, 04/16/2015 11:44:49 AM

Thursday, April 16, 2015 11:44:49 AM

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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.

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