Energy Future files reorganization plan splitting off TCEH subsidiary

By Kali Hays

New York, April 14 – Energy Future Holdings Corp. (EFH Corp.) proposed a joint Chapter 11 plan of reorganization and related disclosure statement on Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

The company said that the plan, which includes subsidiaries Texas Competitive Electric Holdings Co. LLC (TCEH) and Energy Future Intermediate Holding Co. LLC (EFIH), “provides for a comprehensive restructuring and recapitalization of the debtors’ pre-bankruptcy obligations and corporate form, preserves the going-concern value of the debtors’ businesses, maximizes recoveries available to all constituents and ensures continued provision of electricity in Texas.”

In an effort to keep the plan “flexible” and “value maximizing,” the reorganization is based on the possibility of a taxable deconsolidation or tax-free spinoff of TCEH combined with one of three possible forms of transaction for a Reorganized Energy Future Holdings (EFH): a merger, an equity investment, or a standalone reorganization.

“Importantly, the tax-free spinoff is intended to avoid a significant potential tax liability that the debtors believe would, if triggered, materially reduce creditors recoveries at all of the estates,” the plan disclosure stated.

Regardless of the form, on the effective date of the plan the proceeds of the EFH transaction, including any and all cash consideration and common stock will be applied to payment of claims and interests in accordance with the proposed plan.

The plan, which includes a global settlement of all intercompany claims in exchange for the negotiated considerations, has been accepted by all of the debtors’ boards including disinterested directors and managers, according to the disclosure statement.

TCEH is set to receive $700 million settlement of its claim against EFH Corp. which will provide for cash distributions to its creditors. After EFH begins distributing to its allowed administrative, priority and secured claims, TCEH will receive payments until it has received an additional $105 million, bringing the total settlement amount to $805 million.

Holders of equity interests in EFH Corp. are also to receive a $10 million claim settlement.

As previously reported, the company’s initial restructuring support and lock up agreement entered into with various stakeholders upon filing for bankruptcy was terminated at the end of July 2014.

Since the termination of the agreements, EFH Corp. has marketed the assets of is indirect subsidiary Oncor Electric Delivery Co., LLC and has been operating a closed bidding process which is expected to be completed in May.

Plan details

With the proposed tax-free spinoff, TCEH will be separated from EFH before the plan effective date to form a standalone reorganized entity (Reorganized TCEH) and the “tax attributes” of the EFH group will be used to provide Reorganized TCEH with “a partial set-up in tax basis in certain of its assets, valued at approximately $1 billion.”

EFH will begin a sale of TCEH’s preferred stock to supply equity in exchange for its common stock and the Reorganized TCEH sub preferred stock. Immediately thereafter, Reorganized TCEH will issue new Reorganized TCEH sub preferred stock to a third party investor in exchange for cash, according to the disclosure statement.

As a result of the spinoff, holders of TCEH first lien secured claims will receive Reorganized TCEH common stock and 100% of the net cash proceeds of the new Reorganized TCEH debt. If holders of TCEH unsecured debt claims and general unsecured claims vote to accept the plan, they will receive a proportionate share of a combination of cash and Reorganized TCEH warrants and some other possible recoveries including the TCEH settlement.

In the event of a merger transaction, EFH Corp. as the parent and a merging partner will issue shares of Reorganized EFH common stock to holders of claims and interests, with the merging partner surviving as a wholly owned subsidiary of Reorganized EFH.

If an equity investment or backstop commitment is effectuated, on the plan effective date immediately following the spinoff, the investing parties will fund the plan to the extent that holders of allowed claims and interests choose to receive cash payment. The backstop parties will also receive a backstop fee on the effective date of the plan.

Creditor treatment

Whether the tax-free spinoff of TCEH is coupled with a merger, equity investment, or individual reorganization of EFH, treatment of creditors under the proposed plan will remain unchanged.

Treatment of creditors will be as follows:

•Holders of TCEH and EFIH loan claims, administrative claims and priority tax claims s will receive full payment in cash;

•Holders of other EFH secured and priority claims and legacy general unsecured claims will have the option to receive full cash payment from the remainder of the “priority transaction consideration pool” or a reinstatement of their claim;

•Holders of EFH legacy note claims, unexchanged note claims, swap claims, non-qualified benefit claims, and general unsecured claims against EFH Corp. will receive a proportionate share from the “other transaction consideration pool;

•Holders of general unsecured claims against all other EFH debtors will receive a proportionate share of any liquidation recovery;

•Holders of any interests in debtors other than EFH corp. will have the option for reinstatement of the interests or cancellation with no distribution;

•Holders of interests in EFH Corp. will receive a proportionate share of any remaining funds from the other transactions pool after the payment of all other claims;

•Holders of other secured claims against EFIH and TCEH will have the option to receive full cash payment from the priority transaction pool or delivery of the collateral securing the claim;

•Holders of other priority claims against EFIH and TCEH will receive full cash payment from the priority transaction pool or any other agreed upon treatment;

•Holders of EFIH first lien note claims are disallowed in their entirety;

•Holders of EFIH general unsecured claims will receive payment from an EFIH transaction pool as a third priority and;

•Holders of EFIH interests will have their interests reinstated.

A hearing to consider approval of the disclosure statement is set for July 2 and a hearing on confirmation of the plan is scheduled to begin Nov 18.

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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