Reuters – Creditors of Energy Future Holdings will meet this week to discuss strategies for restructuring the fraught power giant, but they are still a long way from a deal, according to several people close to the negotiations.
The Texas utility has been trying to cut a deal with secured lenders before filing for bankruptcy, which it is expected to do before year’s end as it faces $40 billion in debt and a looming Nov. 1 interest payment. But the lenders have insisted that any deal must also address the debt at its regulated power delivery business, meaning unsecured bondholders of that unit have to be part of the talks.
Four people close to the negotiations said on Tuesday that while meetings are scheduled this week between secured lenders and unsecured bondholders of the delivery business, the sides remain at odds over how they would divide up the company’s equity after bankruptcy.
A spokesman for the company was not immediately available for comment.
In recent weeks, the two sides discussed a deal in which secured lenders would get 91 percent of the equity in the reorganized company, these people said. Under that deal, the rest would be split between the bondholders and EFH’s private equity sponsors, KKR & Co, TPG Capital Management and Goldman Sachs Group Inc.
But bondholders have rejected that deal in the past, and would be unlikely accept it now without changes, two of the people said.
EFH, formerly TXU Corp, was taken private in 2007 in a $45 billion buyout, the largest-ever leveraged buyout. The deal saddled the company with debt just before a major decline in natural gas prices and energy markets.
In April, the private equity owners offered secured lenders a deal in which they would keep 15 percent of the new equity, handing the rest to lenders. The lenders rejected the offer in part because it did not reduce debt at Energy Future Intermediate Holdings, the parent of EFH’s power delivery business, Oncor, which is a key part of the company’s profitability.
The latest proposal would reduce EFIH’s unsecured debt by converting some of it to equity. But with power markets down, holders of that debt may get more money by hanging onto their claims and asserting them in a Chapter 11 bankruptcy than by accepting a single-digit equity stake, one of the people said.
Even if the groups agree on the equity split, parties would still need to decide how big a stake to give the private equity owners, and where it could come from.
According to two of the people close to the matter, the sponsors could receive small equity contributions from the stakes of both the lenders and bondholders, or just from the bondholders. They could also get nothing, the people said.
The sides must also figure a way to compensate holders of about $7.5 billion of bonds at EFH’s unregulated merchant power unit, whose claims rank behind the lenders’ but ahead of equity.
That all will make it difficult for EFH to achieve a so-called “pre-packaged” bankruptcy, in which a restructuring deal is finalized before filing Chapter 11. Such a deal would need to be done by the end of the month to give the company time to gain creditor support ahead of about $250 million in interest payments due on Nov. 1, an unlikely scenario given how far apart the sides are, the people said.
A more likely scenario, the people said, is filing for bankruptcy with the framework of a deal in place. The sides view the meetings as a sign of momentum, and remain hopeful that such a framework can be achieved, the people said.
The company could also make its Nov. 1 payment and extend discussions, the people said.