Energy Future Backs NextEra in Bid to Save Oncor Deal
Energy Future Holdings Corp., under pressure to find a way to end a long and expensive stay in bankruptcy, is throwing its weight behind NextEra Energy Inc.'s bid to salvage its deal for the company's transmissions business, Oncor.
Energy Future filed for bankruptcy in 2014 and has been trying to sell Oncor to raise cash to pay off creditors, but was twice stymied by Texas regulators. In April, the Public Utility Commission of Texas rejected a takeover offer that valued the electricity-transmissions business at $18.7 billion. The terms of the deal weren't in the public interest, regulators said.
NextEra goes before the Texas PUC next week to seek reconsideration of the deal, and Energy Future is backing NextEra's bid. In a filing Thursday, Energy Future warned the PUC that "a better alternative is exceedingly unlikely to materialize," and continued rejection of the NextEra deal means an uncertain future for Oncor.
If NextEra can't buy Oncor, one of the most valuable electricity-transmissions businesses in the country is likely to be "equitized," or handed over to creditors, lawyers for Energy Future said. Oncor itself never filed for bankruptcy, as it was shielded from Energy Future's financial woes by safeguards required by regulators. Still, absent a deal with NextEra, the risks and uncertainty of belonging to a bankrupt parent company will weigh on Oncor, lawyers for Energy Future warned.
NextEra and Energy Future will await the outcome of the regulatory appeal with Elliott Management, a hedge fund that controls more than $2.8 billion of Energy Future debt, breathing down their necks. Elliott recently sued for the right to find an alternate path out of chapter 11 for Energy Future, citing the history of failed deals and a ticking professional fee meter.
The lawsuit seeks a ruling from a bankruptcy judge that the hedge fund, Energy Future's biggest creditor, can't be held to an agreement it never signed, which would force it to sit on the sidelines, instead of trying to find a way to resolve the bankruptcy.
In a court filing Friday, Energy Future said the company "firmly" disagrees with Elliott's contentions that it has had its hands unfairly tied in bankruptcy negotiations.
The electricity-generating and retailing businesses of Energy Future, the former TXU Corp., exited bankruptcy last year to become a new company.
The Energy Future that remains in bankruptcy is a shell company that owns 80% of Oncor. Elliott's lawyers say the corporate shell has kept "viselike" control of the chapter 11 proceeding, even though the time for the company to propose a bankruptcy-exit plan without interference from rivals ran out more than a year ago.
Even if NextEra is ultimately able to buy Oncor, the price is likely to be much lower than the original offer, which means less money to spread around among Energy Future's creditors.
Elliott believes it can do better than a revived NextEra deal, and that there is only a "remote" chance the Florida company can prevail before the Texas PUC.
"The prospect of continuing to hold out hope for the best against all odds is no doubt seductive," Elliott's lawyers wrote in papers filed with the U.S. Bankruptcy Court in Wilmington, Del. However, value is being "squandered," in a restructuring effort that began years before the bankruptcy and has so far cost more than $1.3 billion, according to estimates cited by Elliott.
The hedge fund said NextEra has only a "remote" chance of saving its deal for Oncor, and warned an adjusted deal is likely to run into opposition from creditors.
After the preliminary rejection by regulators, which came at the end of March, NextEra huddled with Energy Future creditors, seeking concessions, according to Elliott. The talks didn't produce a deal.
NextEra declined to comment on Elliott's lawsuit.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
May 12, 2017 15:05 ET (19:05 GMT)