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Energy Future Said Near Bankruptcy Loan Exceeding $3 Billion

By: Beth Jinks and Jeffrey McCracken |

Energy Future Holdings Corp., the Texas power generator taken private in the biggest leveraged buyout ever, is close to obtaining a loan of more than $3 billion ahead of a bankruptcy filing that may come this month, said four people with knowledge of the matter.

Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley are the key lenders vying to provide parts of the debtor-in-possession financing, and first-lien creditors to Energy Future’s Texas Competitive subsidiary have been invited to participate, said the people, who asked not to be named because the process is private. The final terms and lenders may be decided next week, according to two of the people.

The size of the loan for the former TXU Corp., which has fluctuated over the past few weeks, is now likely to be about $3.5 billion, said two of the people. Debtor-in-possession financing is funding arranged by a company going through the Chapter 11 bankruptcy process, which typically has priority over existing debt, equity and other claims. Such a large DIP may help reassure vendors, customers and regulators the company can meet its obligations.

“The discussions that are underway right now are not about valuation and mostly about how the losses will be allocated,” James Hempstead, a credit analyst at Moody’s Investors Service, said in a telephone interview. “We think a filing will be organized and amenable as opposed to disorganized and contentious.”

Bond Prices

Texas Competitive’s $1.83 billion of 10.25 percent senior unsecured bonds due 2015, which pay interest on Nov. 1, traded at 3.5 cents on the dollar yesterday, up from an all-time low of 1.87 cents on Sept. 25, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Adam McGill, a spokesman for Dallas-based Energy Future, declined to comment, while Evercore Partners Inc. (EVR), the company’s restructuring adviser, didn’t reply to a request for comment. Representatives at Morgan Stanley, Citigroup and JPMorgan declined to comment, while an official at Bank of America didn’t respond to a request for comment.

Some Energy Future creditors continued to negotiate in New York this week, seeking consensus on a restructuring plan ahead of filing for Chapter 11, said one of the people. Key creditors have signed non-disclosure agreements for the talks, which expire Oct. 14 and may be extended, the person said.

Rejected Plan

Energy Future is due to pay about $270 million in bond coupons Nov. 1 — cash more senior creditors want the company to retain by filing for bankruptcy.

Texas Competitive’s $15.4 billion term loan that matures in 2017 was quoted at 67 cents on the dollar today, according to prices compiled by Bloomberg. The loans are down from 74.2 cents on May 21.

Texas’s largest electricity provider has struggled to reduce debt since it was taken over in a $48 billion deal in 2007 led by KKR & Co. (KKR), TPG Capital and Goldman Sachs Capital Partners. The biggest-ever leveraged buyout left Energy Future with more than $40 billion in debt in a bet natural gas prices would rise. Instead, they plunged to below $2 from a July 2008 high of more than $13 per million British thermal units.

The company said in April that creditors had rejected a prepackaged bankruptcy plan to restructure $32 billion in debt held by Energy Future’s competitive power unit. The plan called for creditors to forgive obligations in exchange for equity and $5 billion in cash and new debt.

Energy Future, which had $43.6 billion in debt as of the end of June, said in August that it has “engaged in additional discussions” with a broader group of creditors and continues to evaluate restructuring options including filing for Chapter 11 bankruptcy for some or all of the company, excluding power-line unit Oncor Electric Delivery Co.

Oncor, the regulated and profitable power transmission and distribution business, is protected from any restructuring, according to corporate filings and credit ratings company Moody’s Investors Service.