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Judge rejects creditors’ bid to send bankruptcy case to Texas

By: Steven Church |

Energy Future Holdings Corp., the bankrupt Texas power provider, will restructure $40 billion in debt in a Delaware court, a federal judge ruled, rejecting a request by creditors to transfer the case to Dallas, where the company is based.

U.S. Bankruptcy Judge Christopher Sontchi in Wilmington on Thursday sided with company officials, who argued that the main parties involved — hedge funds and other creditors owed billions of dollars and their lawyers and financial advisers — are mostly on the East Coast.

“This is not a close call,” Sontchi said.

The decision prevents any delay that might have been caused while a new judge became familiar with thousands of pages of documents and an array of complicated legal issues the case raises. When it filed for bankruptcy April 29, listing $49.7 billion in liabilities, Energy Future set a goal of leaving court protection in 11 months.

The company is seeking approval of a plan that would hand control of its deregulated unit to senior lenders and give the unit that owns Texas’s biggest electricity-transmission company to a different group of creditors.

On June 5, Sontchi is scheduled to decide whether to approve a $5.4 billion loan package designed to pay creditors of Energy Future Intermediate Holding Co., a unit of the bankrupt power provider.

Related settlement

The company put off until June 30 consideration of a $1.9 billion second-lien loan and related settlement offer for creditors of Energy Future Intermediate Holding, Edward Sassower, a lawyer for the company, said. That hearing had been scheduled to go forward on June 5.

Second-lien creditors of EFIH were given until June 11 to decide whether to join that settlement. Under the deal, they are to receive less than 50 percent of an early termination fee they would be owed should the company pay off their loan early.

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The company is still committed to its time-frame for winning approval of a reorganization plan, Sassower told Sontchi on Thursday.

On Friday, Energy Future’s 10.25 percent unsecured bonds due next year rose more than 1 percent to 8.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Creditors’ request

A trustee for lower-ranking creditors of Energy Future’s deregulated power-producing unit had sought the move to Dallas.

The trustee, Wilmington Savings Fund Society FSB, may battle the company over the deregulated unit’s value, which would require talking to managers in Texas and visiting the company’s assets, trustee attorney Jeff Jonas said.

Energy Future said the bankruptcy is designed to restructure about $40 billion in debt without affecting operations. The main creditors, lawyers and advisers involved are based on the East Coast, company attorney Andrew McGaan told Sontchi.

“There is no Texas interest standing here today,” McGaan said yesterday.