By: Jose Castro |
A US Bankruptcy Court in Delaware had issued a temporary restraining order to stop the sale of Oncor, the electric delivery company based out of Dallas, TX. The motion to issue the restraining order was filed by Energy Future Holdings.
The order came after EFH filed papers last Tuesday seeking the institution of a bidding process, which would extend the available time frame for the bidding. This would blunt the advances done by two rival firms, namely NextEra Energy and Hunt Consolidated. Both are seeking the control of Oncor but NextEra had withdrawn its proposal after EFH filed its motion with the bankruptcy court.
There have been questions being posed as to the financial capacity of Energy Future, who owes millions of dollars worth of premiums on the USD4 billion debt of Oncor. EFH also owns 80% of Oncor.
EFH has problems of its own, as it filed for bankruptcy protection last April. In the motion, EFH had said it would be drafting a proposal to auction Oncor. Earlier, EFH cancelled an earlier plan at the last minute to exit Chapter 11 under the control of unsecured creditors.
According to EFH spokesperson Allan Koenig, “We believe that a transparent and court supervised marketing process will maximize the assets’ value, and we look forward to providing the court with proposed procedures for this marketing process in the coming weeks.”
In a report from the Dallas Morning News, the decision to delay stems from EFH’s ‘extensive consultations with potential bidders and key creditor constituencies.’ This can even lead to a higher overall bid for Oncor.
The prize is Oncor, as it is a cash cow open for the energy business in the country. The other asset of EFH is Texas Competitive Electric, which has interests in mining, power generation and power sale. This company carries the burden of most the EFH debt totaling USD32 billion.
EFH has conducted itself in strict confidentiality, with its future plans left mostly to speculation due to the lack of information provided to the public. There have been previous confrontations on the lack of information provided to its creditors even during litigation. The questions range from the structure of the transaction to the price of the baseline for the bids, the so-called ‘stalking horse’ deal that is rumored to be under negotiations with NextEra. This is the reason many believe why the company withdrew from the race for Oncor, as a side agreement is said to be nearing completion.
The crux of the matter remains, is if Oncor is solvent after all. EFH and its two divisions were created after a leveraged buyout was undertaken by TPG Capital, KKR & Co and Goldman Sachs Inc. This was the largest ever leveraged buyout in history. EFH had put its resources in rising prices of natural gas but this failed, leaving the company bankrupt. EFH then filed for Chapter 11 protection while it refinanced its debt to its revenue generating division Oncor. In order to finance the loan, there was insurance involved where issue as to who pays the premium came to fore. EFH offered to pay but shareholders of Oncor refused and instead went to court.