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Sunday, 03/30/2014 9:19:10 PM

Sunday, March 30, 2014 9:19:10 PM

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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.

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