Power Broker Energy Futures Holdings Proposes Bankruptcy Plan
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Power Broker Energy Futures Holdings Proposes Bankruptcy Plan

April 25, 2013

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Energy Future Holdings Corp. has proposed a tentative agreement to file a pre-packaged bankruptcy plan, according to a report from Bloomberg News.

Sources say the power producer, which was the target of a private sale six years ago that led to the largest leveraged buyout in American history, is particularly concerned with the $32 billion debt of its subsidiary, Texas Competitive Electric Holdings.

Texas Competitive’s massive debt is one of the primary reasons for its parent's discussions surrounding filing for bankruptcy, according to sources. If all goes to plan, Energy Future will send Texas Competitive, which sells energy to wholesale markets, and a few other units into Chapter 11 bankruptcy.

Under the proposed bankruptcy plan, Texas Competitive’s senior creditors would forgive certain amounts of debt in order to secure equity in Energy Future, as well as an additional $5 billion, sources say.

The deal would also allow Texas Competitive to gain access to $3 billion of immediate credit, and $5 billion of additional credit after the financial restructuring is completed. Sources say the struggling company is Texas’ largest provider of electricity.

It was the subject of much discussion in 2007, when a group of private equity firms bought Energy Future, but leveraged the deal to such a degree that Energy Future was left with more than $40 billion in debt.

The private equity group, however, believed that natural gas prices would eventually rise, thereby giving the company’s more traditional coal-based power plants an advantage in the marketplace.

Instead of rising, however, coal prices recently fell to a 10-year low, which devastated the bottom line for Energy Future and its holdings, according to sources.

Sources say the private equity firms behind the company have agreed to the proposed bankruptcy plan, provided that they retain 15 percent ownership of the company.

At first, creditors balked at this offer, and according to their collective statement in bankruptcy court, they have "directed their advisers to continue to work with the companies and their advisers to explore further whether the parties can reach an agreement on the terms of a consensual restructuring."

In plain language, this means the parties have plenty of negotiating to do before they reach a restructuring plan that everyone agrees on.


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