Energy Future Holdings Corp. weathered its debut
bankruptcy-court hearing on Thursday, clearing a few essential
early motions at a session that made it apparent the energy company
faces opposition to its restructuring strategy.
Judge Christopher Sontchi granted interim approval to measures
that allow the Texas power-seller to move ahead on two of three
multibillion-dollar bankruptcy finance packages as it attempts to
gather support for a restructuring that will split the company in
two, and drop tens of billions of dollars of debt from its balance
sheet.
One of the largest bankruptcies on record, Energy Future's
Chapter 11 debut played to three packed courtrooms in the U.S.
Bankruptcy Court in Wilmington, Del. The company is targeting a
bankruptcy exit within a year, but the consensus it attempted to
forge in months of negotiations remains out of reach.
Hearings are slated to continue on Friday, in a bankruptcy that
was billed as a consensual arrangement but is shaping into a
battleground, with investors in $42 billion worth of debt jockeying
for position.
A minority of top-ranking lenders have signed on to a pact
pledging them to support the restructuring. "We expect that number
to grow significantly over the next weeks and months," Energy
Future lawyer Edward Sassower said on Thursday. The company refuted
allegations it steered the restructuring talks to benefit favored
creditor constituencies at the expense of others.
After months of talks aimed at enlisting strong backing for its
effort to lighten a $42 billion debt load, Energy Future filed for
Chapter 11 bankruptcy protection on Tuesday without sufficient
pledges of support to push its restructuring plan through the
process without a fight. Battles have erupted on both fronts of the
restructuring, which involves two major subsidiaries, Texas
Competitive Electric Holdings and Energy Future Intermediate
Holding.
Lower-ranking bondholders of the Texas Competitive Electric
subsidiary attacked the restructuring proposal, which gives the
revamped business and cash to first-lien creditors, leaving
bondholders with an estimated 2.5 cents on the dollar, or nothing
at all.
"It is not a global restructuring. It is a judicially supervised
foreclosure proceeding," said Christopher Shore, a lawyer for
investors in $2.74 billion worth of unsecured Texas Competitive
Electric bonds, which are slated to be wiped out if Energy Future's
restructuring is approved.
Secured bondholders owed $1.6 billion by Texas Competitive
Electric say there is more value than is reflected in Energy
Future's restructuring calculations, yet they were shut out of
negotiations. "We desperately want our day in court," said Edward
Weisfelner, a lawyer for the secured second-lien bond trustee.
Fidelity Investment Management and bond giant Pimco have signed
on to Energy Future's restructuring agreement, adding support at
various levels of the debt. However, their combined holdings
account for only a minority of Energy Future Intermediate's
top-level debt. Most first-lien and second-lien holders haven't
signed up in support.
Keith Wofford, lawyer for the trustee for Energy Future
Intermediate's first-lien bonds, said many of the subsidiary's
first-lien lenders "actively oppose" the company's restructuring
proposal.
In its Chapter 11 filing on Tuesday, the Dallas-based company
cited an overload of debt from a 2007 leveraged buyout, increased
competition resulting from deregulation, and falling natural gas
prices.
Write to Peg Brickley at peg.brickley@wsj.com
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