NextEra Energy said today that it would acquire Energy Future Holdings’ 80% interest in its regulated utility, Oncor, in a deal valued at $18.4 billion.
In connection with the deal, NextEra and Energy Future entered into a reorganization plan support agreement providing for, among other things, the spin-off of the company’s T-side, Texas Competitive Electric Holdings (TCEH), pursuant to a reorganization plan that will result in a partial step-up in the tax basis of certain TCEH assets, and NextEra’s acquisition of Oncor through the purchase of the company’s so-called E-side, specifically 100% of holding company Energy Future Holdings (EFH).
As reported, EFH owns intermediate holding company Energy Future Intermediate Holdings (EFIH), which directly controls the company’s stake in Oncor.
According to a Form 8-K filed this morning with the Securities and Exchange Commission, the company said the purchase price would consist “primarily of cash.”
NextEra, meanwhile, said in a news release that it would fund $9.5 billion of the purchase price to be used “primarily for the repayment of EFIH debt,” adding, “Of that amount, it is expected that certain creditors will be paid primarily in cash, with the remainder in NextEra Energy common stock.” NextEra said that the amount of NextEra stock ultimately issued to EFIH creditors would be determined based on, among other things, the estimated cash on hand at EFH upon closing and the volume weighted average price of NextEra common stock for a specified number of days leading up to the closing.
NextEra said it would generate the funding from “a combination of debt, convertible equity units, and proceeds from asset sales,” but also noted that the transaction was not subject to any financing contingency.
NextEra said that under the reorganization plan contemplated by the transaction, the EFIH DIP facility, with about $5.4 billion outstanding, would be paid in full, “using cash financed by a non-EFH/Oncor NextEra Energy affiliate upon closing.” NextEra also said the contemplated E-side reorganization plan would “extinguish all EFH and EFIH debt that currently exists above Oncor.”
According to bankruptcy court filings, that includes, among other things, a first-lien and second-lien facility at EFIH, unsecured toggle notes at EFIH, and unsecured debt at EFH.
The deal is subject to regulatory approvals, most notably by the Texas Public Utility Commission, the Federal Energy Regulatory Commission, and the Federal Trade Commission, as well as the completion of the contemplated TCEH reorganization and spin-off, which would occur in September if all goes according to plan.
As reported, certain PUC rulings in connection with the company’s prior plan to sell Oncor to Hunt Consolidated that would have reduced the financial benefits accruing to that deal’s investors from a planned REIT conversion, caused that deal to fall apart last April.
The transaction is required to close by March 26, 2017, subject to a 90-day extension under certain conditions, according to the Form 8-K. NextEra said it expects the deal to close during the first quarter of 2017.
The agreement specifically permits the company to continue to solicit acquisition proposals for Oncor, and even following approval of the merger agreement by the Wilmington, Del., bankruptcy court, to continue discussions on an alternative transaction with any parties with which it was already in active negotiations at the time of such bankruptcy court approval, or with any third party that submits an unsolicited proposal “reasonably likely to lead to a superior proposal.”
The agreement carries a break-up fee, however, of $275 million, if the company completes an alternative transaction. — Alan Zimmerman
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