Published April 15, 2013
Texas power company Energy Future Holdings, formerly known as TXU Corp, has proposed a prepackaged bankruptcy that would restructure $32 billion of debt, but no deal has been reached, the company said on Monday.
Energy Future, taken private in 2007 in the largest-ever leveraged buyout, said in a U.S. Securities & Exchange Commission filing that it has proposed a restructuring deal to creditors that would exchange secured creditors' claims for a combination of equity and new debt.
"The principals of the companies and the creditors are currently not engaged in ongoing negotiations," Energy Future said.
It noted, however, that creditors have conveyed they would consider the restructuring if it increased distributions and better compensated them for the risk of taking on equity.
Energy Future is trying to restructure more than $30 billion in debt it was saddled with after the buyout by a consortium including KKR & Co, TPG Capital Management and Goldman Sachs Group Inc's private equity arm. The $45 billion TXU buyout, which loaded the company with debt, is viewed as one of the most spectacular failures of the last decade's buyout boom.
The company has a large and complex capital structure, and industry experts have speculated about which entities may be headed for bankruptcy and which could be spared.
Most of Energy Future's debt sits on the unregulated side, at Texas Competitive Electric Holdings (TCEH), the holding company for its unregulated retail business, TXU Energy, and its unregulated merchant power unit, Luminant.
The company has ringfenced Oncor, its regulated power delivery business, in hopes of keeping it solvent, and the restructuring proposal revealed on Monday would not have included that unit or the holding company that owns its equity.
The proposed restructuring would have allowed TCEH creditors to trade in their senior claims for a combination of equity at the Energy Future parent and a share of $5 billion in cash or new TCEH debt. Under the company's proposed restructuring, TCEH would pick up $3 billion of new loans and another $5 billion of long-term debt.
The company's private equity backers proposed a restructuring in which the buyout firms and other equity holders would retain 15 percent of the equity in the reorganized company and creditors would end up with the remaining 85 percent, according to the filing.
The private equity firms also suggested that they could provide additional capital to Energy Future in exchange for a larger share of the company, the filing said.
But according to Monday's SEC filing, creditors told Energy Future that they believe the company needs to address debt structure issues at its parent as well as at the holding company for ringfenced Oncor.
They said they would not accept the proposed prepackaged bankruptcy unless, among other things, it achieved "a sustainable debt capital structure" for the parent company and Oncor's holding company "without reliance on TCEH's cash flows."
Some of Energy Future's largest creditors include Apollo Global Management, Oaktree Capital Management, Centerbridge Partners, Fidelity Investments and Franklin Resources, according to a source close to the matter.
Energy Future is not necessarily up against the clock. Although it has about $270 million in interest payments due on May 1, it can easily afford to make them. It has around $2.7 billion in liquidity - plenty for it to survive on, at least until a $3.85 billion bank loan matures in October 2014, a U.S. regulatory filing from January shows.
The TXU takeover was built on hopes that natural gas prices would stay high. Instead, they dropped sharply and are still down 45 percent from February 2007 levels.
Energy Future Holdings is the largest power generator in Texas. Its merchant power unit, Luminant, owns more than 15,000 megawatts of nuclear, coal and gas-fired power plants.
KKR and TPG declined to comment on the matter. Goldman Sachs could not be immediately reached for comment.