Bondholders that have raised billions to buy Energy Future
Holdings Corp.'s prized business, Oncor, will get a shot at pulling
off their deal, the Dallas energy company said Thursday.
Loaded with $42 billion in debt, Energy Future has been looking
for a way out of bankruptcy since last year. Amended chapter 11
plan documents filed Thursday say the company is still weighing two
options. But headed into a crucial phase in its hard-fought chapter
11 case, Energy Future believes a buyout offer for Oncor from
junior bondholders, in an alliance with Hunt Consolidated Inc., is
"the superior path" to the exit.
Besides Hunt, backers of the bondholder buyout include Anchorage
Capital Group, Arrowgrass Capital Partners, Centerbridge Partners,
the Blackstone Group's GSO subsidiary, Avenue Capital Group and
Teacher Retirement System of Texas.
A cash-generating Texas transmissions business, Oncor operates
free of the financial troubles that pushed Energy Future into
chapter 11 protection. By some estimates, it is worth $19 billion.
Until recently, it was destined for the bankruptcy auction
block.
Energy Future scrapped plans to sell Oncor at auction after
bondholders campaigned to capture the value for creditors, through
an in-bankruptcy buyout.
However, Energy Future's hedging its bets, building into the
chapter 11 plan a "stand-alone" option based on a debt-for-equity
swap that would leave some creditors owning most of its stake in
Oncor, and other creditors with cash.
Of the two options, reorganization or deal, the bondholder
buyout offer is "in a more advanced state" of negotiations, Energy
Future said. That is a switch for the company, which resisted
bondholder overtures, citing the risk the deal wouldn't work.
Hunt Consolidated Energy Chief Executive Hunter L. Hunt said in
a statement the bondholder and Hunt consortium is pleased its
buyout plan is one of two options Energy Future is considering, and
that the consortium hopes the proposal will be the final plan to be
presented to the court for approval.
Even though the junior bondholders and Hunt have raised the
money, more than $12 billion in debt and equity funding, the
proposed in-bankruptcy takeover is considered a risky play.
Oncor is a regulated business, vital to the Texas power
infrastructure. The Public Utility Commission of Texas has warned
that the junior bondholder buyout might not pass muster. The
proposal is based on boosting the value of Oncor by converting the
business into a real-estate investment trust.
Hunt has successfully launched an operating energy REIT, but it
is much smaller than the Oncor business, and regulators said they
would take a hard look at any transformation of Oncor.
Mr. Hunt said the buyout consortium "will work closely with the
Public Utility Commission of Texas and other stakeholders to
demonstrate our commitment to a strong and robust Oncor, ensuring
that it has the resources and Texas-based management required to
meet the needs of its customers and its communities throughout the
state."
No matter which of the two scenarios plays out for the
Oncor-linked division, Energy Future plans to spin out its other
major division, which runs electricity generating and retailing
businesses, to appease senior creditors.
Thursday's court filings represent the latest in a series of
strategy shifts from Energy Future, which arrived in bankruptcy
with a turnaround strategy that it thought would get it out of
bankruptcy very quickly. That restructuring fell apart in the face
of heavy resistance from various groups of creditors.
Threatened with a slim recovery in Energy Future's case, junior
bondholders raised enough money based on hopes of profits from
Oncor to pay off creditors of the units that own the Oncor stake,
in cash, in full. The ability to pay off some of the debts could
limit the court fights that have afflicted Energy Future during its
bankruptcy case, and ease the company out of bankruptcy with
relative speed.
Energy Future's new chapter 11 plan is slated for preliminary
review next month in the U.S. Bankruptcy Court in Wilmington,
Del.
The debt weighing on the company is largely the result of a
leveraged buyout of the business that was believed to be a
reasonable deal at the time. Plunging prices for energy changed the
financial picture, and pushed Energy Future into restructuring.
Write to Peg Brickley at peg.brickley@wsj.com
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