Energy Future first-lien settlement approval upheld by district court

By Caroline Salls

Pittsburgh, Feb. 20 – Bankruptcy court approval of Energy Future Holdings Corp. subsidiary Energy Future Intermediate Holding Co. LLC’s first-lien settlement was upheld in a Thursday ruling from the U.S. District Court for the District of Delaware.

The June 6, 2014 order from the U.S. Bankruptcy Court for the District of Delaware was appealed by indenture trustee Delaware Trust Co.

The district court said the appellant “attacks the settlement order on the grounds that it provided a disparate effective recovery on the make-whole claims of the 6 7/8% and 10% noteholders.”

Although the settlement offer provided an equivalent 5% principal premium to both classes of noteholders, apparently to induce them to settle make-whole claims, the district court said the amount each class received compared to the maximum potential value of its respective make-whole claim was unequal.

Delaware Trust argued that the effective recovery between the parties should be equal because the contractual language of the make-whole provisions is “functionally identical.”

Specifically, Delaware Trust claimed the bankruptcy court was wrong in approving the settlement because the debtors’ use of a tender offer was improper, approving a settlement that offered unequal make-whole claim recoveries was a violation of the Bankruptcy Code and the settlement constituted a “sub rosa plan” for Energy Future’s Chapter 11 case.

In Thursday’s ruling, the district court said the use of a tender offer to propose the first-lien settlement was not improper and the unequal treatment of disputed make-whole claims did not violate the Bankruptcy Code.

The court also said the settlement did not constitute a plan.

“The court rejects appellant's arguments,” the ruling said.

“The first-lien settlement was simply a roll-up of the first-lien noteholders with the new [debtor-in-possession] financing.”

Settlement terms

Under the settlement, restructuring support agreement parties will exchange their 10% first-lien note claims, including alleged make-whole claims, for Energy Future Intermediate first-lien debtor-in-possession claims.

The exchange will be made in an amount equal to the greater of 105% of the principal plus 101% of unpaid interest through the first-lien DIP financing closing date and 104% of the principal plus interest at the non-default rate through closing of the DIP facility plus an original issue discount paid in connection with the initial syndication of the first-lien DIP facility.

The first-lien support agreement parties will be entitled to interest on the Energy Future Intermediate DIP facility but no fees.

Also under the settlement, backstop parties will fund $1.7 billion of the first-lien financing.

Energy Future, a Dallas-based power generation company and utility operator, filed bankruptcy on April 29, 2014. The Chapter 11 case number is 14-10979.

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