Vistra Corp (VST)

[Enterprising Investor]

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