Energy Future trustees ask court to order preapproval of tender offer

By Caroline Salls

Pittsburgh, May 15 - Energy Future Holdings, Inc.'s first-lien and second-lien notes indenture trustees asked the U.S. Bankruptcy Court for the District of Delaware to order the company to obtain approval of procedures governing its tender offers before the offers are made, according to a May 14 court filing.

Specifically, second-lien trustee Computershare Trust Co., NA and Computershare Trust Co. of Canada wants the company to seek a court order setting a June 6 hearing on the procedures and adequacy of the disclosures related to the offer and directing the Energy Future debtors to extend a 50% settlement offer deadline for tendering the second-lien notes to the later of June 12, or, if the court orders the debtors to change their tender offer procedures or to make additional disclosures, a date 20 business days after those changes or additional disclosures are made.

Rather than using plan of reorganization claim treatment procedures expressly provided for in the Bankruptcy Code, the trustee said Energy Future has launched a $2.5 billion tender offer for the second-lien notes.

"The EFIH second-lien tender offer strips creditors of basic protections provided by the Bankruptcy Code and violates the securities laws, in an effort to implement a settlement that itself violates the Bankruptcy Code," the trustee said in the motion.

Computershare said the tender purportedly offers to settle a dispute central to Energy Future's reorganization: whether the holders of second-lien notes are entitled to a make-whole premium totaling more than $700 million.

To receive the full settlement consideration of 100% of principal and accrued interest, plus somewhat less than 50% of its make-whole claim, a noteholder must tender its notes within 10 business days after the offer is made. Holders who tender between 10 and 20 business days after the offer is launched receive significantly reduced consideration," the motion said.

By providing various side payments to some creditors, including Fidelity and holders of the company's PIK notes, the trustee said the second-lien settlement violates the Bankruptcy Code's class discrimination rule and cannot be approved.

In addition, the trustee said the Energy Future debtors are attempting to "force a settlement down the throats of EFIH second-lien noteholders by using an unfair process that does not comply with either the Bankruptcy Code or the securities laws and that is based on inadequate and misleading information."

Computershare said Energy Future "compounds the unfairness of its right to terminate by denying noteholders a correlative right to withdraw tendered notes - potentially freezing those notes indefinitely, since EFIH also has the right to extend the tender offer as often as it wants, without full and fair disclosure of the consequences of the untenable choices thrust upon the noteholders."

First-lien noteholders object

In addition, 10% first-lien notes trustee CSC Trust Co. of Delaware filed a separate motion on Thursday that also asks the court to order Energy Future to obtain approval of first-lien tender offer procedures. CSC also asked the court to order the company to "establish an appropriate first-lien tender offer deadline" following the hearing on the procedures.

The first-lien trustee said the legal arguments and grounds Computershare asserted in connection with the second-lien tender offer also apply to the company's first-lien tender offer.

CSC said a majority of the first-lien noteholders oppose the first-lien tender offer and related settlement.

"It appears that [the debtors] are unwilling to address the substantive or disclosure concerns of the indenture trustee or to obtain prior court approval for the first-lien tender offer," CSC said.

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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