Energy Future Holdings‘ pre-arranged reorganization plan, negotiated by the company prior to its bankruptcy filing, is, for all intents and purposes, dead.
During a brief status update that preceded this morning’s omnibus hearing in the case in Wilmington, Del., attorneys for the company told Bankruptcy Court Judge Christopher Sontchi that while the restructuring support agreement backing the pre-arranged plan has not yet been terminated, “it remains terminable.” The attorney said he expects in coming days that parties to the RSA will either move to terminate the agreement, or the agreement will be amended to terminate by its own terms on Aug. 8, giving the parties a few weeks to work on a replacement deal (see “IRS support for Energy Future’s tax deal is the key to reorg,” LCD, May 1, 2014, for a detailed description of the pre-arranged reorganization deal).
Either way the termination of the company’s current pre-arranged reorganization scheme as embodied in the RSA is the result.
The attorney blamed the disintegration of the pre-arranged deal on the increased trading prices of Energy Future debt in secondary markets since the company’s bankruptcy filing. He said he did not know whether the increase in debt prices would be permanent or temporary, or even the reasons behind the increasing prices, but he pointedly noted, “Trading prices do impact behavior.”
As a result of the increased prices, “parties have been reaching out to the company to suggest transactions that were not previously available to it,” he said, citing the recently sweetened offer from NextEra to acquire the company’s regulated utility, Oncor, as an example (see “NextEra, noteholder group up offer for Energy Future Holdings,” LCD, July 17, 2014, also reported on HighyieldBond.com, for a detailed description of the NextEra offer).
Going forward, the attorney said, Energy Future intends to conduct a process to “vigorously pursue” new potential transactions.
As for the NextEra offer, the attorney characterized it as “very promising,” and said discussions over it would continue. Toward that end, he said the company would abandon its proposed $1.9 billion second-lien DIP for unit Energy Future Intermediate Holdings, the intermediate holding company for Energy Future’s 80% interest in Oncor.
As reported, that DIP, which was to have been provided by a combination of certain holders of unsecured toggle notes at EFIH and holders of unsecured debt at parent Energy Future Holdings, was to be converted into equity in the reorganized company and was a key feature of the pre-arranged deal negotiated by the company. But as also reported, the NextEra deal would, depending upon how it shakes out, either make such a DIP unnecessary, or would replace that proposed DIP with a different second-lien DIP facility, provided by NextEra and a group of EFIH second-lien lenders, that would be incorporated into the overall merger transaction.
One other area of note that generated discussion during the status update portion of the hearing was the anticipated structure of any contemplated reorganization scheme and whether it would need to be based upon a tax-free spin-off of unit Texas Competitive Electric Holdings, the intermediate holding company for the company’s unregulated power producing and retailing operations. As reported, addressing the complex tax implications of any reorganization have been a major sticking point as the company has sought to strike a deal among its creditors.
In opting for the tax-free spin-off in the pre-arranged plan scheme, Energy Future’s attorney said that the company had “explored the universe of potential structures.” But in comments delivered after the company provided its status update, an attorney for the indenture trustee for second-lien lenders at TCEH suggested that a transaction structure not based on retaining tax-free attributes for TCEH could be accretive by $2-3 billion of the unit, creating residual value for second-lien holders. – Alan Zimmerman