WILMINGTON, Del.--Energy Future Holdings Corp. launched a
crucial hearing on financing its $42 billion bankruptcy by
announcing it had reached an accord with some key critics and by
winning final approval of a $4.475 billion loan.
Agreements reached in recent days cleared the way for final
approval of the loan, which is designed to support operations at
Energy Future's Texas Competitive Electric Holdings division while
the Texas power company revamps its balance sheet in Chapter
11.
Federal bankruptcy monitors and the official committee of
unsecured creditors had challenged the loan but came to terms with
Energy Future, said company lawyer Edward Sassower of Kirkland
& Ellis LLP. Additionally, a partial accord was reached with a
major contingent of institutions holding Texas Competitive
unsecured debt, Mr. Sassower said.
A related cash collateral order also won provisional approval
over the protests of creditors who said Energy Future had agreed to
pay approximately $100 million a month in unnecessary fees to get
authority to use its cash while operating in Chapter 11. "$2.5
billion is going to be drained out of this estate over a two-year
period" in payments to lenders, said Thomas Lauria, attorney for a
contingent of unsecured creditors. "It's almost irresponsible," Mr.
Lauria said.
Judge Christopher Sontchi indicated at Thursday's hearing in the
U.S. Bankruptcy Court in Wilmington, Del., that he would approve
both the final loan for Texas Competitive and the
cash-authorization arrangement, even though he termed the lender
payments "generous." Judge Sontchi refused to approve extra
concessions demanded by the lenders. A lawyer for Energy Future
said it would have to consult with the lenders to see if they would
still authorize cash use, without those extra concessions.
The bankruptcy loan to Texas Competitive offers assurance to the
power company's business partners that money won't run short while
fights rage on with creditors. While the loan won interim approval
earlier in Energy Future's bankruptcy case, creditors have since
organized and had criticized the deal.
Christopher Shore, attorney for institutions owning $2.7 billion
of unsecured debt, said that while the group has serious problems
with Energy Future's restructuring plan, "in almost all instances
we have been able to agree" on actions needed to stabilize the
business.
The Dallas company filed for Chapter 11 protection in April
after months of negotiations about how to dig out from an overload
of debt, the legacy of a 2007 leveraged buyout.
Some creditors agreed to go along with Energy Future and signed
on to a restructuring support agreement that commits them to
support a Chapter 11 plan that splits the company in two and hands
out equity to appease some creditors.
According to Energy Future, there isn't enough value in the
business to cover all the debts, and some $7.7 billion of debt
attached to the Texas Competitive Electric division is in danger of
getting little or nothing out of the bankruptcy, one of the largest
Chapter 11 cases ever filed.
On Thursday, Mr. Sassower said Energy Future wants "to be clear
that they are not locked in to the" restructuring support
agreement. If a better approach comes along, "or if the facts and
circumstances change," the company lawyer said, Energy Future will
consider alternatives.
The company already has agreed to weigh a competing $1.9 billion
bankruptcy loan for another major division, Energy Future
Intermediate. That loan is slated for review at the end of
June.
A third major piece of Energy Future's financing, a $5.4 billion
loan to refinance Intermediate division debt, comes up for
discussion Friday.
The Intermediate division owns an 80% stake in Oncor, a
transmissions business that isn't involved in the bankruptcy.
Write to Peg Brickley at peg.brickley@wsj.com
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