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Energy Future Holdings weighs bankruptcy filing


Dallas-based Energy Future Holdings, the former TXU Corp., said Monday that it is considering a prepackaged Chapter 11 bankruptcy filing for its biggest units as a path to restructure its massive debt.

According to a filing with the Securities and Exchange Commission, the power company said it has discussed with its most senior creditors the prospect of greatly reducing $32 billion in debt to give it “a sustainable capital structure” and minimize time spent in bankruptcy court. Affected would be units composed of EFH’s unregulated subsidiaries, which include Luminant Generation, the state’s largest generator of electricity, and TXU Energy, the state’s largest electricity retailer.

Oncor Electric Delivery, the regulated subsidiary that operates most of the electricity distribution grid in North Texas, is not part of the proposed restructuring. Oncor, which has about $6 billion of its own debt, was distanced from EFH as part of the 2007 buyout of TXU led by investment firms KKR and TPG Capital that created EFH.

That deal, valued at about $45 billion, saddled the company with about $39 billion in debt. It was the largest leveraged buyout ever, and it would be one of the largest U.S. bankruptcies ever should it come to that.

Under the proposal described in the filing, first-lien creditors would receive a yet-to-be negotiated amount of stock in EFH, plus a share of $5 billion in an unspecified combination of cash and debt. Texas Competitive Holdings Co., the parent of Luminant and TXU Energy, would issue $5 billion of new long-term debt and secure another $3 billion in short-term financing.

“The companies and the creditors have not reached agreement on the terms of any change in the companies’ capital structure,” according to the filing.

Creditors have, however, presented terms they would consider — terms that would provide them with “materially greater value” than those being proposed.

EFH spokesman Allan Koenig said the company made its filing because creditors had received non-public information as part of the talks, and the confidentiality agreements signed by creditors expired Monday. Those creditors had been precluded from trading in EFH debt during that period, Koenig said, but are no long restricted in that regard.

While the filing raises existing speculation that EFH intends to file for bankruptcy, “this doesn’t indicate that something is imminent,” he said. In February, The Wall Street Journal reported that EFH had hired the Kirkland & Ellis law firm to help it restructure its debt.

Despite its size, however, a bankruptcy filing by the EFH units is not expected to disrupt the Texas electricity market, the largest among the states.

“At issue is the debt,” said Terry Hadley, spokesman for the Public Utility Commission of Texas. The company’s power plants, he said, “would continue to generate revenue” and its retailing arm would continue to serve its customers.

The PUC “will continue to monitor the events” to make sure there are no interruptions in supply, he said.

John Fainter, president of the Association of Electric Companies of Texas, an industry group, also said he did not anticipate problems.

“Basically, the plants are needed, and I think they’ll continue to operate,” Fainter said. “I flew a lot of flights on American Airlines while they were in bankruptcy, and I think this will be the same,” he said.

Lessening EFH’s debt would remove a millstone that has dogged the company since the buyout. For example, EFH lost $3.4 billion in 2012, and its interest costs alone came to $3.5 billion, down from $4.3 billion the previous year.