Some Energy Future creditors walk away from talks

Reuters

By Michael Erman and Billy Cheung

NEW YORK, Oct 15 (Reuters) - Some creditors of Energy FutureHoldings (EFH) have stopped negotiating for now with the Texaspower company as it looks to restructure its $40 billion ofdebt, adding another obstacle as debt holders hope to find astructure for a possible bankruptcy before the end of the month.

Unsecured bondholders at Energy Future Intermediate Holdings(EFIH), the parent of Energy's Future's regulated subsidiary,are no longer engaged in ongoing discussions with the companyand other creditors, according to a filing with U.S. regulatorson Tuesday.

The filing did not specify why the creditors had decided notto continue talks. But the company did disclose three possiblerestructuring plans proffered by different creditor groups, eachvastly different than the other in structure.

The filing said that the EFIH creditors have directed theiradvisers to continue to work with the company to explore whetherthe parties can reach an agreement.

Secured lenders at Texas Competitive Electric Holdings,which represents Energy Future's unregulated subsidiary, andEFIH's unsecured bondholders had previously been in directnegotiations. The TCEH creditors have agreed to remain innegotiations, according to the filing, as has a "significantcreditor" who owns debt in various parts of the company'scapital structure.

The "significant creditor" is Fidelity Investments,according to several sources familiar with the matter.Confidentiality agreements with the TCEH creditors will end Oct.21 if they are not extended, one of the sources said.

EFH's creditors want to finalize a restructuring plan beforeNov. 1, when $250 million in bond payments are due. Filing forbankruptcy before Nov. 1 would suspend the bond payments. Filingwithout a restructuring plan could entail years of battles andcompeting restructuring plans in bankruptcy court.

EFH, formerly TXU Corp, was taken private in 2007 in a $45billion buyout, the largest-ever leveraged buyout. The dealsaddled the company with debt just before a sharp decline innatural gas prices and energy markets.

The buyout consortium included private equity firms KKR & CoLP, TPG Capital Management LP and Goldman SachsGroup Inc's private equity arm.

The EFIH unsecured bonds dropped 5.5 points this morning to56.5 upon release of the public filing, while Texas CompetitiveElectric Holdings bank debt traded up about half a point to67.75.

DIFFERENT VIEWS ON STRUCTURE

In this latest round of negotiations, TCEH bondholdersadvanced a plan that would give them virtually all of thecompany's equity plus $6 billion of new senior secured debt and$2 billion of pay-in-kind coupon bonds, while second-lienbondholders at EFIH would get a $1 billion cash paydown. Theequity sponsors, along with unsecured bondholders at EFH andEFIH, would receive $800 million funded by additional seniordebt, to be allocated in a manner to be determined.

Fidelity, the "significant creditor," proposed a plan thatwould give about 94 percent of EFH's equity to the company'ssecured lenders, while enabling EFIH unsecured bondholders toretain 4 percent and the company's sponsors to keep 2 percent.Fidelity's plan would also give secured lenders $8 billion ofcash raised from new financing.

To further entice EFIH unsecured bondholders, they, alongwith the company's sponsors and unsecured bondholders of itsparent, would receive a "tracking stock" under Fidelity's plan,which would distribute payments based on the financialperformance of the company's regulated business.

Some of the proceeds from the tracking stock would be usedto repay 35 percent of the money owed to EFIH second lienbondholders, reducing overall debt for the company.

Unsecured EFIH bondholders proposed a plan that would providethem with a $1.45 billion cash payment and $100 million EFIHunsecured note, effectively implying a near full recovery fortheir claims.

Fidelity declined to comment.

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