Energy Future judge denies motion to lift stay for note deceleration

By Caroline Salls

Pittsburgh, July 8 – Energy Future Intermediate Holding Co., LLC and EFIH Finance, Inc.’s 10% first-lien notes trustee’s motion to lift the automatic stay in the company’s bankruptcy case to allow the trustee to waive a default and decelerate the notes was denied July 8 by the U.S. Bankruptcy Court for the District of Delaware.

Judge Christopher S. Sontchi said in Wednesday’s ruling that, although the EFIH debtors were previously deemed solvent by the court, “cause does not exist to lift the automatic stay to allow the trustee to waive the default and decelerate the notes.”

Sontchi said hardship to the noteholders by maintenance of the automatic stay is, at most, equal to the hardship to the EFIH debtors from lifting the stay and therefore does not considerably outweigh the hardship to the EFIH debtors.

Specifically, Sontchi said if the court declines to lift the automatic stay, the harm to the noteholders is, at most, the value of a $431 million applicable premium. If the court lifts the automatic stay, the judge said the harm to the EFIH estate, at the least, is the exact same $431 million dollars.

The ruling said first-lien trustee Delaware Trust Co. must obtain relief from the automatic stay for the applicable premium to be owed to non-settling noteholders.

Sontchi said the harm to the EFIH debtors from lifting the automatic stay “could eventually be much greater.”

More exposure possible

According to the ruling, the EFIH second-lien trustee plans to file its own motion to lift the automatic stay to rescind acceleration, and the trustee for the EFIH unsecured PIK notes will likely do the same to rescind the acceleration of the PIK notes.

The judge said this could expose the EFIH debtors to the loss of upwards of $900 million from its estate, which “will have a major effect on the debtors’ (including the EFIH debtors’) reorganization process and will benefit a few creditors at the expense of other stakeholders.”

“If the trustee were permitted to lift the automatic stay and expand its own claim by $431 million, it would cause great prejudice not only to the EFIH debtors, but also to their equity holder, [Energy Future Holdings], which, in turn would significantly complicate efforts to successfully restructure the debtors,” Sontchi said.

“To the extent that lifting the automatic stay here leads to follow on make-whole claims from other EFIH creditors, the loss to the EFIH estate and its other stakeholders would approach $1 billion and only compound the harm to the EFIH estate.”

The judge said the court previously ruled that, under the indenture, the trustee had the right to waive EFIH’s bankruptcy default and decelerate the notes.

If the automatic stay were lifted to allow the trustee’s rescission notice to take effect, then the automatic default would be waived, the notes would no longer be immediately due and the refinancing would require payment of an applicable premium, Sontchi said.

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

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