Creditors take aim at Energy Future plan for sale of Oncor stake

October 18
10:03 AM 2014

Energy Future Holdings squared off against creditors in court on Friday as the bankrupt Texas power company sought approval to begin a multibillion dollar auction of its interest in Oncor, a power transmission business.

The company anticipates an auction in February, and sources told Reuters potential bidders include NextEra Energy Inc (NEE.N) of Juno Beach, Florida, Hunt Consolidated Inc of Dallas and Houston-based Centerpoint Energy Inc (CNP.N).

Energy Future is not selling Oncor, but the right to own an 80 percent stake in Oncor, which operates the largest network of power lines in Texas and is closely watched by regulators.

Creditors opposed the structure of the proposed auction because they said it would lock the company into a reorganization that would provide billions of dollars of tax benefits for one group of senior lenders.

"It's predicated on a tax structure that the evidence will demonstrate doesn't maximize value and doesn't maximize creditor recoveries," said Edward Weisfelner, a Brown Rudnick attorney. He represents junior creditors the company has said are unlikely to get repaid.

An attorney for the company told the court the process was developed with creditor input.

"We are saying point blank if we have it wrong and creditors can demonstrate a better structure exists, then we'll consider it," said Stephen Hessler, an attorney with Kirkland & Ellis.

Delaware Bankruptcy Judge Christopher Sontchi will hear arguments and testimony through Tuesday.

Bankrupt companies often sell assets in Chapter 11 as a way to raise money for creditors. Energy Future proposed an unusual two-step sale procedure, with an initial round of sealed proposals to determine which potential buyer would act as the stalking horse, or first bidder.

Once the stalking horse has been selected later this year, Energy Future plans to hold a conventional bankruptcy auction with potential buyers competing against known bids.

The proposal is Energy Future's second attempt to reorganize. An earlier plan that would have ceded the Oncor stake to Energy Future's unsecured creditors unraveled when NextEra Energy presented an unsolicited proposal worth about $2 billion.

In addition to selling its interest in Oncor, Energy Future plans to spin off its Luminant power generating business and its TXU Energy retail supply business to its senior lenders, who are owed $24 billion.

Taxes have been a stumbling block in the company's attempts to restructure its debts, which began a year before it filed for bankruptcy in April.

Spinning off assets could trigger large capital gains taxes and an attorney for the United States said at Friday's hearing the government would likely oppose any deal that would create a large tax liability.

Energy Future took on much of its debt in 2007, when it was formed after the record buyout of TXU Corp led by KKR & Co, TPG Capital Management and the private equity arm of Goldman Sachs.

The case is Energy Future Holdings Corp, U.S. Bankruptcy Court, District of Delaware, No. 14-10979

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