Energy Future proposed interest sale draws creditor objections

By Kali Hays

New York, Oct. 10 – Energy Future Holdings Corp.’s proposed investment or acquisition of its interest in an indirect subsidiary, Oncor Electric Delivery Co. LLC, has elicited objections from indenture trustees Wilmington Savings Fund Society, FSB, Delaware Trust Co., Computershare Trust Co. NA and Computershare Trust Co. of Canada, a group of second-lien noteholders, and its official committee of unsecured creditors, according to separate Friday filings with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Energy Future Intermediate Holding Co., LLC (EFIH) is a direct, wholly owned subsidiary of Energy Future Holdings and owns 100% of Oncor Electric Delivery Holdings Co. LLC, which in turn owns 80% of Oncor Electric Delivery.

Energy Future formally launched its search for a stalking horse bidder Sept. 19.

The sale will be conducted outside of bankruptcy court, as it does not include Energy Future Competitive Holdings Co. LLC and Texas Competitive Electric Holdings Co. LLC and its direct and indirect subsidiaries.

While the group of second-lien noteholders and Computershare, as the noteholders’ indenture trustee, are “pleased” with the possible Oncor sale, they objected to Energy Future’s bid procedures allowing the company to only provide creditors with limited information during the initial marketing of the Oncor interest and only providing further details after a stalking horse has been selected, according to an objection.

The noteholders claim that the lack of information is “both inappropriate and inefficient” and would allow the bankruptcy case to continue without creditor input.

Likewise, Energy Future’s creditor committee said that it supports the company maximizing any asset value, but took issue with the company “once again, mandating outcomes that properly should be the subject of a consensual plan process.”

“The debtors are, in effect, seeking to resuscitate parts of the defunct restructuring support agreement through the bidding procedures, but without the support of a single creditor group for their proposed restructuring,” the committee stated in its objection.

The agreement was terminated July 31.

Wilmington was also pointed in its complaint asserting that Energy Future’s characterization of the Oncor transaction as a “mere procedural, market-driven next step” is “disingenuous” and that the bid procedures seek “unprecedented relief.”

Wilmington’s objection went on to claim that Bankruptcy Code does not provide a basis for a sale of reorganized equity outside of a plan confirmation process and that the bid procedures seek to put in place a “so called tax-free ‘investment’ in the reorganized equity” requiring any Oncor bidder to invest in the reorganized company in “a tax free manner.”

This tax free transaction “could well deprive creditors of billions of dollars of value” and “lock in a rigid plan structure,” according to Wilmington.

Representatives of Energy Future have admitted that in order for a bidder to win the auction, it will have to agree to its specific “efficient” tax structure or bid at a value “that would satisfy the significant stranded tax liability that the estate could incur in a taxable transaction,” according to an objection.

While Delaware Trust said that it has no “definitive position” on a taxable or non-taxable transaction, it said a “taxable transaction could be better for EFIH” and Energy Future is not doing anything to “explore and encourage bids in that form.”

According Delaware Trust’s objection, the proposed Oncor transaction is worth $18 billion or more but fails to consider creditor interests of Energy Future Intermediate Holdings LLC, the direct owner of Oncor.

Energy Future has said the current market conditions to move forward on the proposed auction are “close to ideal,” but Wilmington claims that no analyses of potential changes in the merger market, invest rates, debt markets or utility stock indices have been performed and that nothing indicates the need for “a sale in advance of the plan.”

“Rather than first proceeding to garner stakeholder approval for a consensual restructuring proposal, these debtors seem hell-bent on trying, yet again, and over the objections of the vast majority of their creditors, to mandate the final parameters of any plan – all without the protections contemplated by Bankruptcy Code,” Wilmington said.

“The fact of the matter is that the debtors’ dictated tax structure pits the interests of different estates and their respective creditors against each other.”

Energy Future’s creditor committee and Wilmington asked that the court deny the bid procedures outright, while Delaware Trust, Computershare and the group of second lien noteholders asked that the bid procedures be modified based on their objections.

A hearing is scheduled for Oct. 17.

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

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