- Prepayment premium made notes attractive to investors
- Payment is worth more than $700 million to creditors
- Sponsors likely to lose almost their entire investment
Energy Future’s power lines unit, known as EFIH, is trying to skirt the prepayment premium obligation that made the notes attractive to investors, according to complaint by Computershare Trust Co, the indenture trustee for the notes.
”EFIH seeks to accomplish in bankruptcy what it could not accomplish outside of bankruptcy – refinancing the second-lien notes at lower interest rates without paying the redemption premium,” Computershare said in a court filing.
The early redemption payment is worth more than $700 million, according to earlier court filings by Computershare.
Energy Future took on much of its debt in 2007, when it was formed with the record buyout of TXU Corp, led by Kohlberg Kravis Roberts & Co, TPG Capital and Goldman Sachs Group Inc’s private equity arm GS Capital Partners. The deal turned out to be an ill-timed bet on natural gas prices, which soon began to plummet. Energy Future filed for Chapter 11 bankruptcy in April in the U.S. Bankruptcy Court in Wilmington, Delaware, with a plan to restructure about $42 billion in debt through two separate deals.
It has proposed that Energy Future Intermediate Holding Co or EFIH, which owns the majority of the Oncor power lines business, will emerge from bankruptcy under the control of EFIH’s unsecured creditors. As part of the deal, EFIH plans to refinance $6.2 billion of high-yielding secured debt, including the two issues of notes at the center of the lawsuit.
EFIH launched a tender offer for the notes on May 9 that included a partial early redemption payment. The company has said it expected to litigate the early redemption payment, known as a make-whole payment, with those noteholders that do not participate in the tender.
EFIH’s notes carry interest rates of 11 percent and 11.75 percent, and Computershare said the rates would have been even higher if it weren’t for the commitment to the make-whole payment. Computershare is also seeking added interest payments and its costs and legal expenses, according to its complaint.
Under the other leg of Energy Future’s restructuring, it plans to spin off the unit that owns the TXU Energy retail utility and the power generating business known as Luminant to holders of $24.4 billion in secured debt.
The private equity sponsors of the buyout are likely to lose almost their entire investment in the bankruptcy.
Tom Hals is a correspondent for Reuters in Wilmington, Delaware.