Energy Futures Holding Corp., formerly known as TXU, said that it has failed to reach an agreement with creditors on a restructuring of the company’s debt.
According to an 8-K filed by the company this morning with the Securities and Exchange Commission, the company said that it is continuing negotiations with principals of unit TCEH, but “principals of the EFIH creditors are currently not engaged in ongoing negotiations with the [company].” The company said, however, that advisors of those EFIH creditors are continuing to “work with [the company]…to explore further whether the parties can reach an agreement of the terms of a consensual restructuring.”
Meanwhile, Nov. 1 continues to loom as a key date for the company because a $270 million interest payment is due to unsecured creditors.
The company’s SEC filing did not detail the specific sticking points standing in the way of a consensual resolution at this point in the process, but it did provide the term sheets from three restructuring proposals that had been the subject of the failed discussions in the last round of negotiations – one from a creditor described in the filing as a “significant creditor,” but reported by the Wall Street Journal to be Fidelity; one submitted by creditors of unit TCEH; and one submitted by certain creditors of EFIH.
The company said that all three proposals contemplated the company filing Chapter 11, but the company also said it was seeking to, among other things, “minimize time spent in a restructuring through a proactive and organized solution.” Indeed, the company said that the negotiations included discussion of a possible prepackaged reorganization.
According to the term sheet from the so-called “significant creditor,’ first-lien debtholders of TCEH, with about $24.4 billion of claims, would wind up with 94.2% of the equity in the reorganized company, along with a pro rata share of $8 billion in cash or new first-lien debt. The company’s unsecured noteholders at the holding company level (EFH Corp.) would receive 3.8% of the new equity, while current equity sponsors, including KKR, TPG, and Goldman Sachs, would receive 2% of the new equity.
Nearly $8 billion of junior debt, including $1.57 billion of second-lien notes, would be cancelled, with holders receiving warrants at a strike price to be determined.
Further, under the proposal first-lien creditors of EFIH, the holding company for TXU’s regulated energy subsidiary Oncor (with claims of about $4 billion), would receive new first-lien debt, while second-lien debtholders at EFIH with claims of about $2.2 billion would see 35% of their holdings clawed back at an average price of 116%, or about $800 million, with the remainder either reinstated or repaid at the equity claw price via the proceeds of the new EFIH first-lien debt.
EFIH unsecured creditors, with claims of about $1.5 billion, would receive 54.9% of a proposed “new tracking stock” for EFIH “that would act similar to preferred equity” and would “track the value and business of EFIH and its subsidiaries.” Unsecured debtholders would also backstop a rights offering for $800 million, or about 31.3%, of the new tracking stock, the proceeds of which would be used to claw back the second-lien notes. A total of 11.8% of the remaining tracking stock would be distributed to the company’s unsecured creditors and 2% to the company’s equity sponsors.
Under the TCEH creditors’ proposal, TCEH first-lien creditors would receive $6 billion of new first-lien debt, $2 billion of new PIK debt in TCEH, and 100% of the equity in the restructured company.
On the EFIH side, EFIH first-lien creditors would receive $4.14 billion of new first-lien senior secured notes (or the cash proceeds of the issuance of such notes to third parties); EFIH second-lien creditors would receive $1 billion in cash and $1.2 billion of new second-lien notes; and EFIH unsecured creditors along with the company’s equity sponsors would divide $800 million in cash “in a manner to be determined.”
Certain holders of EFIH’s $1.4 billion of toggle notes due 2018 also submitted a proposal that, according to the SEC filing, was made “in response to the request of EFH and certain EFH equity interest holders to make a cash-out counter proposal to [the TCEH first-lien lenders’ proposal] given ongoing valuation disputes between certain EFIH PIK toggle noteholders and certain TCEH first-lien lenders.” Under that proposal, the TCEH lenders’ proposal would be amended to provide a distribution to toggle note holders of $1.45 billion in cash and $100 million in an unsecured note from EFIH.
Under the toggle note holders’ proposal, claims of the equity sponsors and EFH unsecured creditors would be “determined by EFH with the consent of TCEH first-lien lenders.”
Last, but not least, the filing provided financial projections that the company had previously provided to creditors in negotiating the restructuring. According to those projections, the company sees “open EBITDA,” which is the company’s adjusted consolidated EBITDA incorporating the impact of certain commodity prices as of Aug. 30 and the company’s hedges, of $1.7 billion in 2013 and $1.56 billion in 2014.
Quotes on TCEH first-lien loans were 67.625/68.125 this morning, essentially unchanged from Friday. – Alan Zimmerman