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Re: Enterprising Investor post# 24

Sunday, 06/21/2015 4:31:57 PM

Sunday, June 21, 2015 4:31:57 PM

Post# of 79
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.

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