Energy Future offers to exchange 111/4/12% toggle notes, 10 7/8% notes

By Angela McDaniels

Tacoma, Wash., July 16 - Energy Future Holdings Corp. announced the beginning of exchange offers for its $2,705,000,000 of 111/4/12% senior toggle notes due 2017 and $1,787,000,000 of 10 7/8% senior notes due 2017.

The offers are being held by Energy Future Intermediate Holding Co. LLC and EFIH Finance Inc., according to a company news release.

The companies are offering up to $2.18 billion principal amount of 10% senior secured notes due 2020 and $500 million in cash in exchange for the existing notes.

In addition, Energy Future is soliciting consents to some proposed amendments to the indenture under which the old notes were issued.

For each $1,000 principal amount of notes tendered by the early tender date, holders will be eligible to receive $720 for the toggle notes and $785 for the 10 7/8% notes.

For notes tendered after the early tender date and prior to the expiration date, holders will be eligible to receive $670 for the toggle notes and $735 for the 10 7/8% notes.

The companies will also pay accrued interest on the 10 7/8% notes up to but excluding the settlement date. Holders who receive new notes for their toggle notes will not separately receive any accrued payment-in-kind interest because this amount has been included in the exchange offer payment. If the settlement date occurs later than Aug. 17, then the payment for the toggle notes will be adjusted.

The breakdown of the payments between cash and new notes will depend on how many notes are tendered by the early deadline. If all of the notes were tendered by that time, the payment would be $134.33 in cash and $585.67 principal amount of new notes per $1,000 principal amount of toggle notes and $146.46 in cash and $638.54 principal amount of new notes per $1,000 principal amount of 10 7/8% notes.

The total amount of cash payable in the offer is $500 million and may be subject to proration. Energy Future said this aggregate amount of cash will be paid as the total cash consideration in exchange for notes tendered by the early tender such that each 10 7/8% note and each toggle note tendered will receive the same percentage of its total consideration amount in cash.

The portion of the total consideration amount paid in cash will correspondingly reduce on a dollar basis the principal amount of the total consideration amount for each issue of notes that is comprised of total notes consideration.

No cash consideration will be payable for old notes that are tendered after the early tender date.

The companies will not accept any tender of old notes that would result in the issuance of less than $2,000 principal amount of new notes, and the principal amount of new notes issued to each participating holder will be rounded down, if necessary, to $2,000 or the nearest whole multiple of $1,000 in excess thereof. No additional cash will be paid in lieu of any principal amount of notes not received as a result of rounding down.

The new notes will not be guaranteed. However, they will be secured by collateral on a first-priority-lien basis equally and ratably with the 9¾% senior secured notes due 2019 of Energy Future Intermediate Holding and EFIH Finance and Energy Future Intermediate Holding's guarantees of the 9¾%

senior secured notes due 2019 of Energy Future and its 10% senior secured notes due 2020.

The early tender date is 5 p.m. ET on July 29, and the exchange offers will expire at midnight ET on Aug. 12.

Consent solicitation

Notes tendered by the consent date, which is the same as the early tender date, will be deemed to include consents to the proposed amendments. Holders may tender notes after the consent date with or without delivering consents.

The amendments would eliminate substantially all of the restrictive covenants in the indenture, eliminate some events of default, modify covenants regarding mergers and consolidations and modify or eliminate some additional provisions, including certain provisions relating to defeasance that would otherwise prevent a defeasance without, among other things, delivery of an opinion of counsel confirming that the defeasance does not constitute a taxable event.

In addition, the delivery of consent will constitute a waiver of all claims against Energy Future, the guarantors of the old notes and some affiliates of Energy Future of any breach, default or event of default that may have arisen.

Holders who tender by the consent date will receive a consent payment of $2.50 per $1,000 principal amount of notes. This payment is in addition to the exchange considerations detailed above.

In order to adopt the amendments, consents are needed from the holders of at least a majority of the outstanding notes voting together as a single class.

The company's obligation to make consent payments is not conditioned on the completion of the exchange offers. But if the exchange offers are terminated, the proposed amendments will not become operative.

The offers are conditioned on at least a majority of the outstanding notes being tendered.

On July 15, the companies entered into exchange agreements with some institutional investors who agreed to participate in the exchange offers and the consent solicitation. They are expected to tender and deliver consents for approximately $2.3 billion principal amount, or 52%, of the old notes. As a result, it is expected that no additional notes would need to be tendered in order for the minimum condition to the exchange offers to be satisfied and to obtain the needed consents.

The stated purpose of the exchange offers is to reduce the outstanding principal amount, reduce interest expense and extend the weighted average maturity of the long-term debt of Energy Future and its subsidiaries.

Citi (800 558-3745 or 212 723-6106) and Goldman, Sachs & Co. (800 828-3182 or 212 902-5183) are the lead dealer managers and the lead solicitation agents. Banc of America Securities LLC, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co. Inc. are also acting as dealer managers and solicitation agents.

The information agent is Global Bondholder Services Corp. (866 387-1500 or 212 430-3774).

Energy Future is a Dallas-based holding company engaged in competitive and regulated energy market activities, primarily in Texas.

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