- Noteholders seek a make-whole payment
- Bankrupt power company likely to fight
- Trustee says tender offer is misleading
Energy Future filed for bankruptcy in April with a complex plan to restructure its $42 billion in debt. Part of that plan involves offering a new loan in return for $3.5 billion of secured 10 percent notes issued by a subsidiary known as Energy Future Intermediate Holding.
A majority of holders of the secured notes oppose the plan, according to the lawsuit filed May 15 in the U.S. Bankruptcy Court in Wilmington by CSC Trust Co of Delaware, the secured notes trustee.
The dispute turns on whether the holders of those secured notes are owed an added payment to compensate for early redemption of their securities through the bankruptcy refinancing. Energy Future has said they are not, and had warned when it filed for bankruptcy it was prepared to litigate with noteholders who demand the early redemption payment, known as a make-whole payment.
Energy Future has said it entered bankruptcy with the support of 30 percent of the holders of the secured notes. The EFIH subsidiary owns the Oncor power transmission business, which is not bankrupt. The restructuring plan anticipates EFIH will emerge from bankruptcy owned by lower-ranking unsecured creditors.
The company has commenced a tender offer for the notes in two stages. Investors who tender in the first stage receive better terms, according to Energy Future. The first stage expired on May 19.
The notes trustee also asked the court to hold a hearing by the end of Monday to determine if Energy Future needed court approval for its tender offer. The trustee said the tender offer does not comply with the Bankruptcy Code or securities laws and is based on misleading information.
Energy Future was created in the 2007 leveraged buyout of TXU Corp, led by Kohlberg Kravis Roberts & Co, TPG Capital and Goldman Sachs Group Inc’s private equity arm GS Capital Partners. The $45 billion deal was history’s largest LBO. The buyout firms are likely to recover next to nothing in the bankruptcy.
A company spokesman and an attorney for the trustee did not immediately respond to requests for comment.
Tom Hals is a correspondent for Reuters in Wilmington, Delaware.