By Nick Brown
NEW YORK, Feb 20 (Reuters) – Efforts to negotiate a
consensual restructuring at Energy Future Holdings, the
embattled Texas utility, are looking bleaker, and a long
bankruptcy is becoming the most likely option, according to
several people close to the matter.
The company, struggling under about $40 billion in debt, had
hoped to have the framework of a restructuring deal in place
before filing for bankruptcy, which would save time and legal
costs. But with time running out before potential defaults and
no deal close, a so-called “free-fall” bankruptcy is looking
more likely, said three people close to the matter on Thursday,
and who declined to be named because talks are private.
A bankruptcy would likely result in the breakup of the
company, though it is unclear exactly how it would be broken up,
two of the people said. Energy Future Holdings has not given up
on the prospect of keeping the company together, said one of the
people.
One major obstacle in restructuring talks, according to two
of the people, is a dispute over whether holders of senior loan
debt are entitled to a tax basis “step up,” which would allow
them save on tax payments post-bankruptcy based on a higher
depreciable tax base.
The company is in talks for a roughly $4 billion loan to
fund its regulated holding company through bankruptcy, said
another person close to the matter.
Its unregulated holding company is also in talks for a
bankruptcy loan with a consortium that includes Citigroup,
said one of the people.
The Wall Street Journal first reported that Energy Future
was preparing for a breakup and in talks for a bankruptcy loan.
Energy Future Holdings was created in October 2007 in a $45
billion buyout of Dallas-based TXU Corp, the biggest electricity
generating and distribution company in Texas.
The buyout, led by KKR & Co, TPG Capital Management
LP and the private equity arm of Goldman Sachs,
saddled the company with debt just as natural gas prices were
about to plunge, making its coal-fired plants unprofitable.
Many industry experts believed the company would choose to
skip a $270 million interest payment and file bankruptcy last
November, but the company chose to make the payment, extending
its runway for restructuring talks.
Its next day of reckoning may be fast approaching. Sometime
this month or next, Energy Future expects to receive an opinion
from auditors on whether it can survive as a going concern based
upon its annual financial statements. It may have trouble
convincing auditors to grant a positive opinion, given that it
does not have enough cash to afford the $3.8 billion of bank
debt that matures in October. Failure to secure such an opinion
would trigger a default of EFH’s $20 billion of bank debt,
meaning lenders could push the company into bankruptcy.
