Dive Brief:
- The bankruptcy case to consider Energy Future Holdings' restructuring plan kicked off this week, what creditors hope will be the final phase in the 18-month long effort to reorganize the company.
- As part of the plan, EFH will be split into two halves, with Hunt Consolidated leading a group of creditors which will own regulated utility Oncor and another group taking over the struggling power generation assets.
- The deal, which is expected to value Oncor at $18 billion or more, would restructure EFH into a Real Estate Investment Trust (REIT).
Dive Insight:
It's been a year and a half since the Energy Future Holdings began the bankruptcy process, but the final stage kicked off this week with a two-part trial. The company is asking U.S. Bankruptcy Judge Christopher Sontchi to split its assets into two portions, and allow Hunt Consolidated to restructure EFH into a REIT.
The structure has never before been used with such a large utility, and the Moody's called the plan risky because it opens the the door to “regulatory contentiousness” and investor risk.
But the deal, backed largely by Hunt Consolidated, follows months of negotiating and company officials are hopeful. “This is an enormously important day,” Marc Kieselstein, an attorney for Energy Future, told the Star-Telegram, following "painful, nonstop struggle."
The trial will focus on whether creditors are getting a fair price under Hunt's plan.
Under the proposal, Hunt said 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 consortium would acquire EFH and its 80% ownership stake in Oncor, a transmission and distribution only utility, and EFH's prized asset.
The newly restructured REIT will be owned by the consortium and managed by Hunt, the company said, and will lease the transmission and distribution assets to Oncor, who will operate the system on the REIT's behalf. An operating company will be created and will keep the Oncor name, with its headquarters remaining in Dallas, Texas.
The consortium of investors includes: Hunt, Anchorage Capital Group, Arrowgrass Capital Partners, Avenue Capital Group, BlackRock, Centerbridge Partners, GSO, and the Teacher Retirement System of Texas.