Dive Brief:
- Texas lawmakers are casting scrutiny on a plan to invest teacher retirement funds into Oncor's new Real Estate Investment Trust structure, signaling that many questions remain about the specifics of the deal, the Texas Tribune reports.
- Texas regulators last month approved Hunt Consolidated's plan to purchase Oncor out of bankruptcy, which hinged on operating the utility as a REIT. But the approval left some specifics to be determined, and questions are filtering down into other sectors.
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“I have concerns that we’re protecting our investments for our teachers,” a lawmaker told the executive director of the Teacher Retirement System of Texas.
Dive Insight:
When Texas regulators approved the Oncor deal last month, it was a broad approval that left some details to be determined, and with that, also left open the possibility that investors might balk at the terms. The uncertainty created by the deal is on display in the Texas Tribune's reporting over teacher retirement funds, and whether the state's administrating body of those funds should invest in the deal.
According to the Tribune, the Teacher Retirement System of Texas is set to invest $250 million in the REIT, assuming the terms have not changed. “We thought that the deal, as characterized, would be beneficial for the teachers with a stake in it,” TRST Executive Director Brian Guthrie told a Texas legislative committee.
Guthrie also told lawmakers that there are no known conflicts of interest that would preclude the investment.
Lawmakers, however, remain concerned about the complexity of the deal. Texas Sen. Troy Fraser (R) told Guthrie, “I urge you to follow the proceedings because I have concerns that we’re protecting our investments for our teachers."
Rate impacts of the deal will not be known for about a year, and there are a variety of procedural steps still left for the deal. The REIT structure became the central issue of the proceeding, in part because no utility of Oncor's size has used it before. But the proposal is drawing attention within the industry, and CenterPoint Energy has announced it is also considering the REIT structure for all of its utility business.
As part of the plan to pull Energy Futures Holding out of bankruptcy, a group of creditors want to split the company into two halves, with Hunt Consolidated leading a group of creditors which will own regulated transmission and distribution utility Oncor, and another group taking over the struggling power generation assets.
Under Hunt's proposal, the first lien creditors of Texas Competitive Electric Holdings Company (TCEH), the merchant energy subsidiary of EFH, will receive TCEH's assets in a tax-free spinoff. That portion of the deal will satisfy approximately $25 billion in claims. Following that, the creditor consortium would acquire EFH and its 80% ownership stake in Oncor.
The newly restructured REIT will be owned by a consortium managed by Hunt and including Anchorage Capital Group, Arrowgrass Capital Partners, Avenue Capital Group, BlackRock, Centerbridge Partners, GSO, and the Teacher Retirement System of Texas.
