Energy Future contemplates Chapter 11 bankruptcy as creditor talks lag

By Jim Witters

Wilmington, Del., Nov. 1 - Energy Future Competitive Holdings Co. LLC is no longer negotiating with creditors toward a pre-packaged Chapter 11 plan of reorganization, but some creditors' financial advisers continue to work with the company "to explore further whether the parties can reach an agreement on the terms of a consensual restructuring," according to a form 10-Q filed Oct. 31 with the U.S. Securities and Exchange Commission.

"EFH Corp. and its subsidiaries, other than Oncor Holdings and its subsidiaries, continue to consider and evaluate possible transactions and initiatives to address their highly leveraged balance sheets and significant cash interest requirements and have entered into discussions with their lenders and bondholders with respect to such transactions and initiatives," the filing stated.

Energy Future has been adversely affected by the sustained decline in natural gas prices and its effect on wholesale and retail electricity prices.

Natural gas hedges the company's TCEH enterprise entered into will mature in 2013 and 2014.

"These market conditions challenge the long-term profitability and operating cash flows of EFCH's and its subsidiaries' business and the ability to support their significant interest payments and debt maturities, and could adversely impact their ability to obtain additional liquidity and service, refinance and/or extend the maturities of their outstanding debt," the 10-Q stated.

The maturity of $3.8 billion of TCEH term long facilities occurs in October 2014.

As of Sept. 30, TCEH had $1.3 billion of cash and cash equivalents and $171 million of available capacity under its letter of credit facility.

"TCEH may not have sufficient liquidity, absent any financing transactions, to meet its obligations within the next twelve months," according to the filing.

Creditor talks

EFH Corp. conducted negotiations with creditors on debt-for-debt exchanges, recapitalizations, amendments to and extensions of debt obligations and exchanges or conversions of debt for preferred or common equity or warrants, including exchanges or conversions of debt.

Those talks resulted in two possible approaches to restructuring, but failed to produce a consensual plan for a pre-packaged Chapter 11 bankruptcy.

One proposal

The first proposal considered by Energy Future and its creditors would have resulted in a pre-negotiated restructuring of EFCH's approximately $32.2 billion principal amount of debt, EFH Corp.'s roughly $650 million principal amount of debt and EFIH's $7.6 billion principal amount of debt.

After the restructuring, EFH Corp. would continue to hold all of the equity interests in EFCH and EFIH. EFCH would continue to hold all of the equity interests in TCEH, And EFIH would continue to hold all of the equity interests in Oncor Holdings.

Second proposal

The other proposal contemplated that EFIH, excluding Oncor Holdings and its subsidiaries, would implement a plan of reorganization by through a stand-alone voluntary bankruptcy case.

After the restructuring, certain creditors of EFIH would own a substantial majority of the equity interests in EFIH. And certain creditors of EFH Corp. and the equity holders of EFH Corp. would collectively own a minority of the equity interests in EFIH.

The confirmation of any plans of reorganization in such cases would be subject to applicable regulatory approvals.

EFH Corp. is not currently engaged in ongoing negotiations with the principals of any of the creditors.

EFCH, a wholly owned subsidiary of EFH Corp., is a Dallas, Texas-based holding company. EFCH conducts business almost entirely through TCEH.

TCEH is a holding company for subsidiaries engaged in competitive electricity market activities largely in Texas, including electricity generation, wholesale energy sales and purchases, commodity risk management and trading activities and retail electricity sales.

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