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Energy Future, Creditors Trying to Reach Debt-Restructuring Deal — Update

By: Mike Spector and Emily Glazer |

Energy Future Holdings Corp., the Texas utility at the center of a record private-equity buyout, is in the midst of last-ditch negotiations with creditors in a bid to reach a debt-restructuring deal before it seeks Chapter 11 bankruptcy protection, said people familiar with the matter.

The Dallas-based power company’s lenders and bondholders have signed confidentiality agreements within the last week in the hopes of reaching a deal that would somewhat streamline Energy Future’s upcoming trip through bankruptcy court, the people said. The agreements allow creditors to review the company’s nonpublic financial records.

Energy Future, formerly called TXU Corp., is preparing to file for bankruptcy protection as soon as April 1, the people said. That is around the time the company must file an annual report with federal regulators that is likely to reveal it has received an opinion from auditors expressing doubt about its ability to continue as a going concern, the people said. Such an opinion would trigger a default on billions of dollars in debt that would force the company to file for bankruptcy protection.

The company is preparing to file Chapter 11 with or without a deal with creditors, the people said. The question is whether Energy Future can in coming days negotiate a “restructuring support agreement” with creditors that would make the expected bankruptcy case smoother and avoid a protracted, contentious court battle.

If the company and creditors make progress, Energy Future could ask regulators for an extension to file its annual report, which could buy more negotiating time and possibly push any bankruptcy filing to the end of April, the people said.

The negotiations remain fluid, and it is unclear whether any deal will be reached before next week, the people said. Energy Future’s board is scheduled to meet on Friday to review details of the talks and the company’s bankruptcy plans, one of the people said.

KKR & Co., TPG, Goldman Sachs Group Inc.’s private-equity arm and others took TXU private in 2007 for roughly $32 billion and another $13 billion in assumed debt, making it the largest leveraged buyout ever. The buyers believed natural gas prices would rise and allow TXU, renamed Energy Future, to charge more for electricity. Instead, prices plummeted, resulting in enormous financial losses. The owners have since been unable to turn the company around and have written down most of the $8 billion they invested in the deal.

The renewed negotiations include creditor groups that have been warring with the company and each other for more than a year, raising the hopes that key constituencies may be able to bridge their differences in coming days. The creditors have been arguing about complex tax issues related to an Energy Future restructuring and how they should be repaid in bankruptcy.

At least two important creditor groups recently signed confidentiality agreements so they can negotiate with Energy Future anew. The first is a group of lenders to Texas Competitive Electric Holdings, an unregulated subsidiary that sells power in wholesale markets to big companies and other utilities, that are owed more than $20 billion. Those lenders include Apollo Global Management LLC, Centerbridge Partners LP and Oaktree Capital Management LP.

The other is a group of Energy Future Intermediate Holding Co. bondholders owed billions of dollars that includes Avenue Capital Group, GSO Capital Partners ( Blackstone Group LP’s credit arm) and York Capital Management LLC. That subsidiary owns a business called Oncor, which operates the largest electricity distribution and transmission system in Texas.

These debtholders signed confidentiality agreements at varying times, with most coming within the last week, one of the people said. Some of the creditors signed confidentiality agreements as recently as this week, this person said.