UPDATE- 10/31/2013- Bloomberg says that EFH will make an interest payment due tomorrow rather than file for bankruptcy
Talks fell apart after various creditor groups to the former TXU Corp. were unable to reach a consensus for a reorganization, said the people, who asked not to be identified because the deliberations were private. The distribution of $270 million in bond coupons buys the Dallas-based company and its lenders at least several months to negotiate a fresh deal with broader support while also raising the specter that they’ll be unable to reach mutual terms.
Investment firms from Avenue Capital Group LLC to Centerbridge Capital Partners LLC had been working since at least March on a bankruptcy plan for Energy Future, the target of a 2007 leveraged buyout that was the largest ever. Secured lenders, who are senior to the other debt holders and would be paid out first in a reorganization, didn’t want the coupon payments made as the funds go to more junior creditors.
Saw some more EFH articles in the last week. EFH said to add directors as board default vote nears.
Energy Future Holdings Corp., the power producer preparing for bankruptcy, added two directors to its boards before a vote this week on whether to make a crucial interest payment, said a person with knowledge of the situation.
At least one of the newly appointed board members is independent, said two people, who asked not to be named because the process isn’t public.
The former TXU Corp., the subject of the largest leveraged buyout ever, faces a Nov. 1 deadline to make about $270 million in interest payments. Directors of companies approaching bankruptcy are required to shift their priorities to benefit creditors rather than equity holders.
EFH restructuring talks expand
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.
Moody’s estimated in a Sept. 9 report that secured lenders, who are paid out first in a Chapter 11 reorganization, may recover as much as 68 percent of the debt’s original value.
Those firms built influential creditor positions by buying large stakes in Energy Future’s secured debt as its prospects dimmed. In a proposal by the group that wasn’t accepted, secured lenders would receive all the equity in the restructured company while the current owners would share $800 million with two sets of unsecured debt holders, according to the filing.
Unsecured debt holders “would be pretty much wiped out,” recovering as little as 4 percent, the analysts, led by Hempstead, wrote. The regulatory filing last week said that a group of those investors was contemplating litigation.
One of the commissioners told me yesterday that Somervell County has a concern that EFH might opt not to pay property taxes, but consider it as part of the bankruptcy proceeding. I asked him if he knew of any examples where that had been done; he said no. IF it were the case that the property taxes don't have to be paid until a settlement was made, then the county would be immediately scrambling for money. Suppose that EFH doesn't get a plan together that all creditors agree to BEFORE voting to go for bankruptcy. That might lead to an administrative law judge getting involved, after one or more hearings before their court, and then a decision being made by the ALJ. When, for example, the 2 proposed reactors for Comanche Peak were contested, the argument went before an ALJ. The ALJ took months to come to a decision about the merits of the case. What if a contested action with EFH, with no taxes being paid, took years? Remember that EFH pays property taxes on 78/22 (as of 2012) rule. In other words, 78 percent of the property taxes being used to pay for services here are paid by CP, 22 by Somervell County residents.
Apparently the concern is high enough that this might happen that the Somervell County employees were gathered together (at least some of them) and told about this situation, that the bankruptcy might cause the county to have to shut down some services, jobs, etc, in order to pay their bills. They would then have to make decisions about what services were required by the State of Texas and which ones were not. Saying this another way, Somervell County MUST supply certain services for county residents and would have to figure out how they were going to do that. Here's a list
Maintenance of Roads & Bridges
Indigent Medical Care
Issuing & Recording Public Documents
Elections and Voter Registration
Vehicle Registration/Titles/Sales Taxes
Emergency Medical Services
Operation & Maintenance of Parks
County Hospitals/Hospital District
Solid Waste Facilities and Serivces
Mental Health Services
The commissioner also alluded to the county looking for funds to operate should a worst case scenario ensue. One wonders if Mike Ford would be leading the charge to illegally pass a large securities bond, as he did with that 14.4 million dollar bond to benefit then-private Glen Rose Medical Center, or the Somervell County commissioners court vote for a public vote to both decide whether to take on the debt, AND decide what to spend the money on.
For example, what's more important to you? Subsidizing a golf course or fire protection? Subsidizing the amphitheatre or the hospital? The commissioner I spoke with was all for the golf course and believed that the county would run it in the black after a certain amount of time. That's fine but for me, I don't golf. I would be just as fine with selling the golf course off to a private entity to run, and taxpayer stop paying one nickel for its use. I also believe strongly that the people who are the same bunch that were unelected that are now also running the hospital district should have looked at all options for the hospital, including having it leased to a private entity instead of creating a blank check district. If I, on a personal level, if fortunes change, have to decide which items to fund or change, so must the county with the ELECTED people we pay taxes to.
Anyway, it's fair to say that until the board vote takes place that is going to spell out exactly HOW EFH intends to do their bankuptcy, we can only speculate about various scenarios.