TXU Energy, Luminant Cleared to Exit Bankruptcy
August 26 2016 - 2:40PM
Dow Jones News
Power generator Luminant and retail electricity provider TXU
Energy Inc., two of the largest energy businesses in Texas, are
headed toward an exit from bankruptcy after winning confirmation of
a chapter 11 plan.
Judge Christopher Sontchi's approval wraps up phase one of the
$42 billion bankruptcy case of Energy Future Holdings Corp. of
Dallas. The plan confirmed Friday launches a new company containing
Luminant and TXU Energy, the two main operating businesses owned by
Energy Future.
Phase two of one of the largest corporate workouts on record
involves Energy Future's other main division, which owns 80% of
Oncor, a thriving electricity transmissions business that is
operating free of Energy Future's bankruptcy.
Upon exit, Luminant and TXU Energy will be taken over by senior
lenders, including affiliates of Apollo Global Management,
Brookfield Asset Management, and Oaktree Capital Management.
Senior lenders lost more on their investment in the former TXU
Corp. than did the equity stakeholders that had $8 billion on the
line, owners Kohlberg Kravis Roberts & Co., TPG, and Goldman
Sachs & Co., according to evidence put in during the five-day
confirmation hearing in the U.S. Bankruptcy Court in Wilmington,
Del.
The 2007 leveraged buyout of the former TXU Corp. ran into
trouble after energy prices took a dive, eating into the profits of
the electricity business.
Owed $24.4 billion, Apollo and other senior lenders agreed more
than three years ago to exchange their debt for ownership of the
companies. The wait was because of Energy Future's struggles to
line up support for a restructuring from other creditors.
The company filed for bankruptcy protection in April 2014 with a
restructuring plan that had insufficient support to carry it
through court. Junior creditors of the Luminant and TXU Energy
division fought the company to a standstill, forcing pursuit of a
new plan.
Along the way, junior creditors agreed to "disarmament"
provisions that made confirmation proceedings relatively smooth.
They are getting $550 million cash, a partial recovery on what they
are owed.
Taxes were a pivotal issue for Energy Future's restructuring.
Done incorrectly, the separation of Luminant and TXU Energy into a
separate company could have left Energy Future with a tax bill of
more than $6.5 billion. The tax bill would have weighed on the
parent company and its remaining property, a control stake in
Oncor.
Creditors who objected to the Luminant and TXU Energy plan said
threats from senior lenders to push a taxable deal through were
hollow, as the lenders benefited from the tax-free spin out.
Backers of the plan, including most creditors involved in the
case, warned a taxable deal would have threatened the recovery of
lenders owed billions and would have changed the shape of the deal
for Oncor that is the central feature of the phase two plan.
Phase two of Energy Future's bankruptcy exit is built around a
proposed deal to sell its stake in Oncor to NextEra Energy Inc. of
Florida. NextEra is offering $9.5 billion in a deal that values
Oncor at $18.4 billion. Other contenders are still in the field,
including Hunt Consolidated Inc., which was Energy Future's
original choice of a buyer for Oncor.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
August 26, 2016 14:25 ET (18:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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