So.. Energy Future Holdings (EFH) Piling on MORE DEBT (Aug 10 2012)Somervell County Salon-Glen Rose, Rainbow, Nemo, Glass....Texas


 

So.. Energy Future Holdings (EFH) Piling on MORE DEBT (Aug 10 2012)
 


10 August 2012 at 11:03:50 AM
salon

What have we read about EFH for the past week? First, that they posted a loss for the 2nd quarter of this year. Second, that they're getting rid of some pensions. And now, they're going to issue $750 milllion bucks in debt.

The Dallas Observer says this will be used to pay an inter-company loan from Texas Competitive Electric Holdings.

Right. I remember, TCEH (Texas Competitive Electric Holdings used to be TXU Energy Company LLC). When KKR/Energy Future Holdings bought TXU, they leveraged it with getting money FROM TCEH as loans. What this caused after awhile was another hedge fund  investor , Aurelius to complain that is not legal, because TCEH giving money to EFH was not *arms length* transactions and were supposed to be according to the contract. Let's say this another way. EFH didn't have the money to buy all of TXU so they needed a loan. TXU which became TCEH loaned them the money at below-market rates. Aurelius then said, because they were trying to get some of their money out BEFORE EFH defauts on the loan that they owe themselves TCEH that TCEH told them in 2011 that they were insolvent. What EFH had to do to try to get this monkey off their back was sell back a bunch of the bonds TO TCEH. They also, in April of 2011, tried to get the lenders to change the terms of the deal.

The NY Times wrote about this issue in September 2011 asking "When a Bankruptcy Event Doesn't mean bankruptcy". Aurelius was asking for the courts to declare, because of the problem with TCEH and EFH, that TCEH was insolvent.

The Texas Competitive Electric Holdings Company is not a public company, but a subsidiary of two reporting companies. And in a recent registration statement, one of those parent companies said this as part of its discussion of the “risk factors” associated with the registration:

Analyses of TCEH’s business indicate that the principal amount of its outstanding debt exceeds its enterprise value.

Aurelius Capital has asked the International Swaps and Derivatives Association committee that considers these matters to rule that the “becomes insolvent” language in part (b) means insolvency in a balance sheet sense of the word, and that, among other things, the above registration statement language constitutes an admission that the Texas Competitive Electric Holdings Company is insolvent on that basis.

The question was, if no bankruptcy has been declared but you know that a subsidiary is insolvent, can you treat them like it is a bankruptcy, ie, before the fact? Well, NO. From Feb 1 2012

[Aurelius] claims that below-market interest rate intercompany loans made by Texas Competitive Electric last year was a technical event of default. ISDA’s determinations committee, however, refused to call it that and thus no credit event was declared to enable credit default swaps tied to the company’s debt to pay out.

So what was EFH (TXU) going to do to fix this?

Energy Future Holdings Corp. (TXU), the Texas power company taken private in 2007 in the largest buyout in history, plans to sell $400 million of notes to partially repay intercompany debt that hedge fund Aurelius Capital Management LP has said violates the company’s credit agreement.

The Dallas-based company will sell the second-lien, senior secured notes due in 2022 in a private offering through units Energy Future Intermediate Holding Co. and EFIH Finance Inc., according to a statement today. Proceeds will be used to pay back so-called demand notes owed to its Texas Competitive Electric Holdings subsidiary, the company said in the statement. The company had $1.6 billion of such notes outstanding as of Dec. 31, the company said in a regulatory filing today.

Bloomberg- Jan 31 2012

 

Energy Future Holdings Corp. (TXU), the Texas power company taken private in 2007 in the largest buyout in history, plans to sell $400 million of notes to partially repay intercompany debt that hedge fund Aurelius Capital Management LP has said violates the company’s credit agreement.

The Dallas-based company will sell the second-lien, senior secured notes due in 2022 in a private offering through units Energy Future Intermediate Holding Co. and EFIH Finance Inc., according to a statement today. Proceeds will be used to pay back so-called demand notes owed to its Texas Competitive Electric Holdings subsidiary, the company said in the statement. The company had $1.6 billion of such notes outstanding as of Dec. 31, the company said in a regulatory filing today.

Aurelius Capital, one of Texas Competitive’s creditors, said in a February 2011 letter to loan administrator Citigroup Inc. that the intercompany loans violated Energy Finance’s debt agreements, two people with knowledge of the matter said at the time, declining to be identified because the letter wasn’t made public.

Allan Koenig, a spokesman for Energy Future, declined to comment beyond the public filing. Energy Future General Counsel Robert Walters said in February that Aurelius’s allegations were “utterly meritless.” Stephen Sigmund, a spokesman for Aurelius, declined to comment.

Energy Future may be required to repay a portion or all of demand notes it owes Texas Competitive if the debt is found by a court to be improper, according to the filing. A lender the company didn’t name has claimed as recently as the fourth quarter of 2011 that the intercompany notes “are fraudulent transfers,” the company said.

That brings us to August 9th, 2012.

Energy Future Intermediate Holding Company LLC and EFIH Finance Inc. (collectively, the "Issuers"), both wholly-owned subsidiaries of Energy Future Holdings Corp. ("EFH"), intend to commence a private offering of $250 million principal amount of Senior Secured Notes due 2017 and $500 million principal amount of additional 11.750% Senior Secured Second Lien Notes due 2022. The Issuers intend to use a portion of the net proceeds from the offering to pay a dividend to EFH in January 2013. EFH will use the proceeds of the dividend to repay the outstanding balance of demand notes that are payable by EFH to its wholly-owned subsidiary Texas Competitive Electric Holdings Company LLC ("TCEH") that have arisen from cash loaned by TCEH to EFH. Pending such use, such portion of the net proceeds from the offering will be deposited into an escrow account. Holders of the notes will have no security interest in the escrow account. The remaining net proceeds will be used for general corporate purposes, which may include the payment of dividends to EFH.

Wonder if that will include the dividends that KKR and top corporate people keep paying to themselves, even while pensions are being cut.

This press release shall not constitute an offer to sell, or the solicitation of an offer to buy, any of the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction. The securities to be offered have not been registered under the Securities Act of 1933 (the "Securities Act") or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements of the Securities Act and applicable state securities laws. The securities will be offered inside the United States only to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to persons outside the United States in reliance on Regulation S under the Securities Act. This notice is being issued pursuant to Rule 135c under the Securities Act.

If EFH really considered Aurelius claims to be without merit, then why are they selling these second lien notes? Also, in Jan 31 2012, EFH said they were selling $400 million worth of notes, but the offering from yesterday is $250 miliion. Will there be two (or more) of these offerings, ie, spreading them out? Or perhaps they made a deal with Aurelius to do this to keep this out of the court, as Aurelius was going to sue (not sure that they filed)

P.S. Incicentally, someone named "Henry Kravis" left a comment on one of our previous writings that I didn't really pick up on until I read this Bain article about Mitt Romney. HK comment was

I work at the plant. Luminant doesn't have two nickels to rub together. I wouldn't get all wound up over a bunch of press releases about building a new nuclear plant. All of Luminant's cash has to go to pay management fees to Goldman Sachs, KKR and TPG. The billionaires in New York get first dibs on the money. This loan guarantee scam is just something they're trying to get that they think, and they're usually wrong, will have some sort of tangible worth when they either take Luminant into bankruptcy or flip it in the long-shot event that gas prices come back and Luminant's junk coal plants somehow come back into the money. The problem in Japan won't keep Luminant from building, low natural gas prices will. It is silly to think a company that is too cheap to do routine maintenance is going to plow billions and billions into a nuclear plant that isn't needed.  Everything this company does seems to blow up in its face, which is sad for the customers and employees, but doesn't bother the money-changers who own the company and are destroying it. Remember, they make a fortune on management fees. In a just world, the scumbag politicians who approved this sale would be horsewhipped, or at least tarred and feathered.

I am going to talk abou this comment on a separate post, later on today or tomorrow, will link here when done writing.

 

 


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