The Texas utility is seeking support for a deal proposed by bank lenders at its unregulated holding company to restructure the bulk of its $40 billion in debt.
Within the last few weeks, it has ramped up efforts to get first- and second-lien bondholders of Energy Future Intermediate Holdings (EFIH), its regulated holding company, behind the deal as well, the people close to the talks said. They declined to be named because talks are not public.
The first-lien bondholders are being advised by lawyers from Ropes & Gray and financial advisers from Capstone, said the people. Pimco and Blackrock are among the largest holders of those bonds.
The talks with the bondholders underscore the complexity of EFH’s capital structure and its efforts to achieve a path for its restructuring before it files for Chapter 11 bankruptcy.
The company will likely file for bankruptcy, according to analysts and people familiar with the company’s thinking, but would prefer to garner as much support from creditors as possible to facilitate a much easier and cheaper bankruptcy.
Time to reach such a framework is running out: EFH has about $270 million in interest payments due next Friday, Nov. 1, and while EFH could make the payment and extend the runway for restructuring talks, people close to the matter told Reuters it is more likely the company will file for bankruptcy protection ahead of the payment date.
The company declined to comment for this story.
BONDHOLDERS IN THE LOOP
EFH, formerly TXU Corp, was taken private in 2007 in a $45 billion buyout, the largest-ever leveraged buyout. The deal saddled the company with debt just before a sharp decline in natural gas prices and energy markets. The buyout consortium included private equity firms KKR & Co LP, TPG Capital Management LP and Goldman Sachs Group Inc’s private equity arm.
The first- and second-lien bondholders at EFIH were initially not a critical part of restructuring discussions because they are considered in the money. But a restructuring plan put forth by the lenders, disclosed by the company in a Securities & Exchange filing last week, carries implications for their payments.
While the economics of the plan could change, it purports to give the lenders all of the company’s equity plus $8 billion in two tranches of debt, with the buyout sponsors receiving $800 million to be split with other creditor classes. The plan would forgo certain ‘make-whole’ payments that the EFIH first- and second-lien bondholders claim they are owed.
Make-whole payments are generally triggered when creditors are repaid early to compensate them for the present value of foregone interest. The EFIH first-lien bondholders are negotiating in hopes of enforcing the payment if the bonds are refinanced, said two of the people close to the matter.
The likelihood of getting a deal done remains uncertain, with sides still far apart on key issues, the people said. And, to be sure, EFH does not need any creditor support to file for bankruptcy, though having it would reduce the uncertainty of what would be a large and complex case.
Ideally, the company would also like the support of other bondholders at EFIH. But holders of EFIH payment-in-kind notes already walked away from talks, and the second-lien bondholders are currently not restricted from trading, which limits the substance of any discussions they may have, according to two of the people close to the matter.
Nick Brown and Michael Erman are reporters for Reuters News in New York