Energy Future debt was on the move as a key hearing progressed.
EFIH 10.25% second-lien notes due 2015 rose roughly three points, to a 15 bid.
Bids for the company’s $1.75 billion of 11.75% second-lien notes due 2022 were at 123.75 today, off a market of 126/127 hit late last week, sources said. These bonds were at 118.5/119.5 at the time of the April 2014 bankruptcy filing.
The company’s bank debt was more or less unchanged. The power producer’s extended term loan due 2017 (L+450) was at 82/82.5. The company’s non-extended term loan due 2014 (L+350) was bid at 81.875, sources said.
The hearing scheduled for today in Wilmington, Del., will likely determine, to a large extent, the ultimate treatment of both creditor classes in the company’s eventual reorganization plan. It is worth noting that while the issues at today’s hearing each present distinct upsides for each creditor class, the potential downside recovery risks are somewhat muted, perhaps explaining how levels on each would rise despite the creditors being in conflict with one another.
At issue in the hearing is whether to approve a proposed $1.9 billion second-lien DIP for Energy Future Intermediate Holding (EFIH) from the company’s unsecured creditors, primarily holders of the so-called EFIH toggle notes. As reported, EFIH controls the company’s 80% interest in regulated utility Oncor.
Together with the already-approved $5.4 billion first-lien EFIH DIP, the second-lien DIP would be used to roll-up second-lien debt and provide the company with additional liquidity.
The proposed second-lien DIP is part of the company’s pre-arranged reorganization plan that would, in effect, see the toggle noteholders, together with Fidelity, a holder of the unsecured debt at parent Energy Future Holdings, acquire nearly 100% of the equity in the reorganized company (following the spin-off of Texas Competitive Energy Holdings), with the DIP converting into about 62% of the equity in reorganized Energy Future Holdings, EFIH’s parent (creditors would acquire the remaining 38% of the equity via direct distributions under a reorganization plan).
Further, under the proposal the company’s current second-lien lenders, owed roughly $2.1 billion, would be repaid in full, including accrued and unpaid interest, but excluding any make-whole amount that holders have asserted is due on the debt as a result of early repayment. Rather, second-lien holders have been offered a settlement of 50% of the asserted make-whole claim via a tender offer that expires on July 3 (early participation in the proposed settlement drew holders of only 43% of the notes).
As reported, however, second-lien lenders have joined with NextEra Energy to propose a rival $2.3 billion second-lien DIP as part of a larger plan under which NextEra would acquire EFIH in order to bring it out of Chapter 11. Under that plan, second-lien lenders would be repaid in full, including the entire make-whole claim. Toggle noteholders, meanwhile, would receive a combination of cash and equity that would repay them in full.
Among other things, the second-lien/NextEra proposal is at a lower interest rate, and charges lower fees. – Abby Latour/Alan Zimmerman
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