Fort Worth Star-Telegram

The debtor-in-possession financing, typically used to fund operations during Chapter 11 proceedings, would include a $5.2 billion portion for its Energy Future Intermediate Holding Co. subsidiary from lenders including Citigroup, Morgan Stanley and Deutsche Bank, said the people, who asked not to be identified because the talks are private.

A second loan, for as much as $2 billion, would give EFH the option of repaying existing second-lien debt on the subsidiary, which includes EFH’s 80 percent stake in Oncor Electric Delivery, the regulated utility that operates the poles and wires that serve most of North Texas.

Bloomberg News

The loans are part of talks by Energy Future, its private-equity owners and unsecured lenders to the parent and its Intermediate division to solidify a plan aimed at avoiding a free-for-all during Chapter 11 proceedings. The Dallas-based company, known as TXU Corp. when KKR & Co., TPG Capital and Goldman Sachs Capital Partners took it private in 2007 in the largest leveraged buyout ever, is seeking to restructure $45.6 billion of debt before month-end, when auditors may raise doubts about its ability to remain a going concern.

FT

Since the bank debt has been trading at well below 100 cents on the dollar, senior creditors have been asserting for months that the company is in the “zone of insolvency” and should be run to benefit them.

Its private equity owners, in turn, have sought to force senior creditors including Apollo Global Management, Centerbridge and Oaktree Capital Management to negotiate a consensual deal by offering to suspend payments to more junior creditors in return for concessions that would allow them to preserve some value for their equity.

On November 1, however, the company made a $270m payment to bondholders, infuriating senior creditors.

The two sides have fought over the timing of any bankruptcy filing. Creditors argue that private equity firms like to keep even the most insolvent companies going as long as they can to extract fees.

AND EFH is trying to get the IRS to defer their capital gains taxes because, of course...

As Energy Future Holdings prepares for what could be one of the largest-ever U.S. bankruptcies, some of its private-equity lenders are pushing a breakup of the company that could reap them more than $1 billion in tax savings, two people close to the matter said this week.

But such an arrangement could provoke a challenge from the U.S. government, since it would result in a multi-billion-dollar capital gains tax bill that the bankrupt entity is unlikely to be able to afford.

Earlier this year, in an unusual move, the company and the lenders reached out to the Internal Revenue Service seeking its blessing on the proposed structure, according to the sources, who refused to be named because talks are private. The agency declined to rule because the plan is not official, they said.