Dive Brief:
- A bankruptcy judge in Delaware has approved Energy Future Holdings to move ahead with the sale of its assets, including regulated utility Oncor, to Hunt Consolidated for an estimated $18 billion.
- Opponents of the plan have momentarily put aside their objections, the Dallas Morning News reports, but doubt remains that a plan to turn Oncor into a real estate investment trust can succeed.
- Energy Futures can now begin asking creditors to support the proposal, but there will likely be more debate to come at a trial in November over the fairness of the deal.
Dive Insight:
The Dallas Morning news called it a "quiet conclusion" but the real fireworks may still be on the horizon. U.S. Bankruptcy Judge Christopher Sontchi has cleared Energy Futures to begin soliciting support from its creditors for the deal, but a trial slated to begin in November -- focused on whether or not the creditors are getting a fair price -- could bring more contention.
“We’re happy to cede the battleground today,” said attorney Andrew Dietderich, who represents an opposing creditor group. "Our objection is stronger than ever.”
In August, Energy Futures had chosen Hunt to acquire its assets out of bankruptcy. An earlier Moody's report had said the plan was "risky," opening the door to "regulatory contentioness" and investor risk. But that didn't deter the deal.
Hunt's plan for Oncor involves turning the utility into a real estate investment trust, which would shift tax liability away from the company and over to shareholders. But the arrangement has never been attempted with a utility of Oncor's size, leading some to doubt the outcome.
Under the 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 the consortium and managed by Hunt, which would lease the transmission and distribution assets to Oncor, who will operate the system on the REIT's behalf. 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.
