Energy Future’s Debt Swap Gets Just $358 Million of Uptake

NEW YORK (Reuters) – Energy Future Holdings said on Thursday that bondholders offered to swap just $357.5 million of debt, far short of the $6 billion initially targeted by the power company in a massive debt exchange.

The company, taken private by Kohlberg Kravis Roberts and TPG Capital in a record 2007 leveraged buyout, had been trying to restructure some of its $43 billion debt load.

But the exchange offer had encountered opposition from bondholders, who balked at Energy Future’s offer of between 46.5 and 74.5 cents on the dollar for their outstanding notes.

With just 6.0 percent of bondholders supporting the offer, total debt will be reduced by only $100 million, Gimme Credit analyst Carl Blake said in a note on Thursday. Energy Future had initially hoped to reduce debt by about $2 billion.

“We weren’t surprised because the proposed offer wouldn’t have guaranteed bondholders a superior recovery, nor would it have done much to reduce Energy Future Holdings’ untenable debt load,” Blake said.

Energy Future said in a statement it will issue about $256.6 of new senior secured notes in exchange for the tendered notes. The company also said it did not receive the necessary consents to amend some covenants, or lending terms.

“We remain committed to improving our balance sheet,” Paul Keglevic, Energy Future’s chief financial officer, said in a statement. “We will continue to explore all options available to us to achieve this objective.”

The new notes being swapped would have given bondholders an improved claim on Energy Future’s prized transmission business Oncor, but bondholders had worried that their security would be weak. Covenants would have allowed Oncor to be sold and the bonds transferred to a different company, analysts said.

“Fortunately for Energy Future Holdings, it isn’t faced with the threat of an imminent event of default, which means it has time to come up with a more comprehensive solution,” Gimme Credit’s Blake said in a report.

(Reporting by Dena Aubin)