Legal & Regulatory

Texas’ Largest Power Company Files For Bankruptcy

Energy Future Holdings Corp. (EFH)—the Dallas-based holding company whose portfolio includes Luminant and TXU Energy—filed for Chapter 11 bankruptcy protection today.

With support of key financial stakeholders, the company reached an agreement on a restructuring plan that it says will reduce debt, lower annual interest costs, allow access to additional capital, and create a sustainable capital structure for the future. The filing includes EFH and certain subsidiaries, including Texas Competitive Electric Holdings Co. LLC (TCEH, the holding company for its competitive businesses, including Luminant and TXU Energy) and Energy Future Intermediate Holding Co. LLC (EFIH, the holding company for its regulated business, Oncor Electric Delivery Co.). The company noted, however, that Oncor itself—in which EFH is 80% owner—is not part of the Chapter 11 filing.

Chapter 11 is intended to permit a company to continue normal business operations while it reorganizes its balance sheet. As part of the process, a group of lenders committed to provide new capital—called debtor-in-possession financing—that will be available, following court approval, to help support normal business operations. The new commitments are reportedly worth $4.475 billion for TCEH and $7.3 billion for EFIH.

The company reassured customers and employees that operations would be unaffected at Luminant and TXU Energy and that wages and benefits would be paid as usual. Luminant is a Texas power generation business with plant, mine, wholesale marketing and trading, and development operations. It has more than 15.4 GW of generation capacity. TXU Energy is a retail electricity provider with more than 1.7 million customers in Texas.

“We are pleased to have the support of our key financial stakeholders for a consensual restructuring,” said John Young, president and CEO of EFH. “This restructuring is focused on our balance sheet, not our operations. We fully expect to continue normal business operations during the reorganization.”

Under the terms of the proposed restructuring agreement, upon emergence, transactions would be implemented to eliminate certain debt at EFH and certain of its subsidiaries.

TCEH and its subsidiaries would separate from EFH without triggering any material tax liability. TCEH’s first lien lenders would receive all of the equity in the reorganized TCEH and the cash proceeds from the issuance of new debt at the reorganized TCEH in exchange for eliminating approximately $23 billion of TCEH’s funded debt.

At EFIH, the proposed transaction would eliminate approximately $2.5 billion of EFIH’s funded debt through, among other things, a capital infusion of up to $1.9 billion from certain EFIH unsecured noteholders. This capital would convert, along with all EFH and EFIH unsecured notes, into equity in the reorganized EFH upon the completion of the company’s reorganization. In addition, certain EFIH unsecured noteholders will receive cash consideration as a part of the reorganization.

At EFH, the proposed transactions would eliminate approximately $600 million of EFH’s funded debt. The reorganized EFH would continue to own EFIH, and EFIH would continue to retain its interest in Oncor.

The reorganization requires certain regulatory approvals, including the approval of the tax-free transaction by the Internal Revenue Service, approval by the Public Utility Commission of the State of Texas, and approval by the U.S. Nuclear Regulatory Commission due to Luminant’s ownership of the Comanche Peak Nuclear Power Plant.

“We expect that, with the support of our financial stakeholders, our restructuring can proceed expeditiously as we seek to strengthen our balance sheet and position the company for the future,” Young added.

Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)

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