Energy Future 10% notes trustee seeks payment of $665 million premium

By Caroline Salls

Pittsburgh, May 16 - Energy Future Holdings Corp. indenture trustee CSC Trust Co. of Delaware filed a lawsuit on Thursday against Energy Future Intermediate Holdings Corp. LLC and EFIH Finance Inc. seeking a declaration that EFIH is obligated to pay a $665.2 million redemption premium in connection with the proposed refinancing of the debtors' 10% notes.

According to a filing with the U.S. Bankruptcy Court for the District of Delaware, in issuing $3.482 billion of 10% notes, CSC said the entities "induced holders to purchase the notes by offering call protection, including a redemption premium," which protects a holder's right to the yield that was contracted for at the time notes are issued and/or purchased.

CSC said the issuer, in turn, benefits from obtaining lower interest rates or fees than would otherwise be available absent such call protection.

If interest rates decline, CSC said the issuer can determine whether the interest savings from a refinancing will exceed the required redemption premium and, if the net savings justify, may refinance the notes.

"At the very outset of these Chapter 11 cases, EFIH seeks to do in bankruptcy what it could not do outside of bankruptcy - refinance the 10% notes at lower interest rates without the payment of the redemption premium," the adversary proceeding said.

If Energy Future would have repaid the notes the date before the bankruptcy filing, CSC said there would be no dispute that the redemption premium was due, and "there is no basis in law or the 10% indenture for EFIH to avoid its redemption premium obligations by filing a voluntary bankruptcy petition, particularly where, as here, the 10% notes are substantially oversecured."

CSC said Energy Future claims the automatic acceleration of the 10% notes upon the bankruptcy filing renders the redemption premium inapplicable.

However, the trustee said the indenture contains no carve-out from payment of the redemption premium upon acceleration, and the indenture gives noteholders the contractual right to rescind any acceleration and its consequences.

Energy Future, a Dallas-based power generation company and utility operator, filed for bankruptcy April 29. The Chapter 11 case number is 14-10979.

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