After reaching a debt restructuring deal with creditors, Energy Future Holdings has filed for Chapter 11 bankruptcy protection. The deal will break up the company – separating the generation and retail arm (Texas Competitive Electric Holdings) from the parent company (EFH) – and eliminate more than half its $40 billion in debt.
The decision to file for bankruptcy was not unexpected. Low power prices and billions of dollars in annual interest payments caused the company to struggle. These struggles produced not only massive losses that few would have predicted, but also the largest leveraged buyout in U.S. history.
First-lien lenders with claims on $23 billion in debt would take over TCEH, which includes Luminant and TXU Energy. In exchange for giving up $2.5 billion in debt claims, creditors of the company’s regulated transmission arm would receive equity in the reorganized EFH. Unsecured creditors would contribute up to $1.9 billion in cash to the new company. Creditors of the parent company EFH would give up $600 million in debt claims. Support from the company’s larger creditor pool remains to be seen. The bankruptcy could potentially set off a lengthy court battle with lower-level creditors believing their investment to be wiped out.
EFH struck an optimistic note, making predictions that the deal should allow it to emerge from bankruptcy within 11 months. CEO John Young wrote, “As a result of the constructive discussions we have had in recent months with the company’s key financial stakeholders, we have reached an agreement on a restructuring plan that will give us the opportunity to reduce our debt, lower our annual cash interest costs and access significant additional capital.”
Liabilities and Assets
EFH listed total liabilities of $49.7 billion and assets of $36.5 billion in its bankruptcy petition. State legislators forced the private equity firms to keep the company separated from the parent company’s debt.
Debtor-in-possession loans have been obtained for both TCEH and the regulated arm, Energy Future Intermediate Holdings in order to continue operating during the bankruptcy.
Source: Dallas News, Energy Future files for bankruptcy, company splitting up, April 29, 2014