Judge to Reconsider NextEra Breakup Fee on Oncor Deal -- Update

A bankruptcy judge on Tuesday dealt a blow to NextEra Energy Inc.'s campaign to collect a $275 million breakup fee for its failed attempt to take over Energy Future Holdings Corp.'s Oncor power-transmission business.

Judge Christopher Sontchi said he made an error last year when he approved the breakup fee in a deal Energy Future hoped would bail it out of bankruptcy. Reconsideration of the breakup fee order is appropriate, the judge said.

Tuesday's ruling is a win for creditors of Energy Future, which are now counting on a new deal -- the sale of Oncor to Sempra Energy, for $9.45 billion. That isn't enough money to pay off all the debts remaining in Energy Future's bankruptcy case, which began in 2014.

NextEra's claim to a $275 million breakup fee, had it succeeded, would have put a big dent in the pile of money Energy Future is expecting from the Sempra deal, leaving some creditors with a depleted recovery. Judge Sontchi's ruling that the breakup fee was approved based on an erroneous understanding casts serious doubt on whether NextEra will be able to collect.

The product of years of effort, NextEra's takeover attempt was rejected by the Public Utility Commission of Texas in a surprise ruling this year. Regulators said NextEra's buyout of Oncor, a power-transmission business that is a vital piece of the Texas power system, wasn't in the public interest.

Defeated in the deal, NextEra claimed it was entitled to collect the breakup fee from Energy Future, to cushion the blow of a takeover campaign that cost tens of millions of dollars.

The decision came in a fight led by Elliott Management Corp., a hedge fund that picked up big stakes in Energy Future debt earlier this year. Elliott has been leading creditors in an effort to spur aggressive action by Energy Future to defeat the breakup fee.

Write to Peg Brickley at peg.brickley@wsj.com

A bankruptcy judge on Tuesday dealt a blow to NextEra Energy Inc.'s efforts to collect a $275 million breakup fee for its failed attempt to take over Energy Future Holdings Corp.'s Oncor power-transmission business.

Judge Christopher Sontchi said he made an error last year when he approved the breakup fee in a deal Energy Future hoped would bail it out of bankruptcy. Reconsideration of the breakup fee order is appropriate, the judge said.

The ruling, which came at a hearing in the U.S. Bankruptcy Court in Wilmington, Del., is a win for creditors of Energy Future, who are now counting on a new deal -- the sale of Oncor to Sempra Energy, for $9.45 billion.

Assuming the Sempra buyout closes, it wouldn't bring enough money to pay off all the debts remaining in Energy Future's bankruptcy case, which began in 2014. That makes the NextEra breakup fee fight a matter of high interest to creditors.

NextEra can still appeal the decision. A spokesman for NextEra wasn't immediately available to say what the company will do.

The company's claim to the breakup fee, had it succeeded, would have put a big dent in the pile of money Energy Future is expecting from the Sempra deal, leaving some creditors with a depleted recovery.

NextEra's takeover attempt was rejected by the Public Utility Commission of Texas in a surprise ruling this year. Regulators said NextEra's buyout of Oncor, a power-transmission business that is a vital piece of the Texas power system, wasn't in the public interest.

NextEra claimed it was entitled to collect the breakup fee to cushion the blow of a takeover campaign that cost tens of millions of dollars.

The company has said it was still trying to get the PUC Texas to change its mind when Energy Future pulled the plug on the Oncor sale and began talks with other contenders.

Judge Sontchi on Tuesday said he wouldn't have approved a breakup fee provision that entitled NextEra to collect as long as it refused to admit the Oncor deal was dead, so the provision was a mistake.

The ruling is likely to spur settlement talks over the breakup fee, lawyers said at Tuesday's court hearing.

The decision came in a fight led by Elliott Management Corp., a hedge fund that picked up big stakes in Energy Future debt earlier this year. Elliott has been leading creditors in an effort to spur aggressive action by Energy Future to defeat the breakup fee.

Energy Future opposed Elliott's plea to the judge to reconsider the breakup fee. Although Energy Future has filed a suit to challenge the fee, it was reluctant to argue that the breakup fee provision was approved in error.

In its lawsuit, Energy Future contends NextEra didn't use commercially reasonable efforts to win over regulators who had the final say on the Oncor sale. NextEra denies the allegations.

That litigation will continue, with Elliott and an official committee of unsecured creditors participating.

That means NextEra is facing a two-front legal fight to collect the $275 million. It must defeat Energy Future's lawsuit and mount a successful appeal of Judge Sontchi's ruling on the mistake in the breakup fee provision.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

September 19, 2017 14:35 ET (18:35 GMT)