Energy Future Holdings, the Texas energy giant that was taken private in 2007 in a record-breaking $45 billion buyout, disclosed Monday a potential bankruptcy plan to its creditors.
The proposal to restructure about $32 billion in debt is the opening move in what many say could be a long and contentious battle between the company and its largest creditors.
During the last month, Energy Future Holdings has held discussions with a group of investors that hold a large amount of the senior secured debt of the segment of the company that controls its power-generation business.
As part of those discussions, the company proposed a deal that would sharply reduce the amount of debt held by that segment while allowing the private equity owners to walk away with a sliver of the parent company’s stock.
Specifically, the plan would wipe out about $25 billion of debt in the affiliate that controls the retail energy and power-generation business. In exchange, the debt holders would get a stake in the parent company, as well as either $5 billion of new debt or cash, according to a filing made Monday with the Securities and Exchange Commission.
The buyout owners said they would support the proposal if they could retain 15 percent of the parent company’s equity, giving the creditors the remaining 85 percent, according to the filing.
The parent company, through another affiliate, holds an 80 percent stake in the utility company, Oncor, which some Wall Street analysts say could eventually be valuable to investors.
The buyout firms also said they would consider contributing new equity capital to Energy Future Holdings for a larger financial stake in the company.
The filing does not shed any light on when an actual restructuring could occur.
Moreover, a person with knowledge of the discussions between the company and its creditors described the negotiations as being in their early days, saying it still could be several months before an actual bankruptcy filing is made.
There is little pressure on the company to act immediately as it has ample cash on its balance sheet to make its next round of interest payments, Wall Street analysts say.
A spokesman for Energy Future Holdings echoed those sentiments in an e-mail, noting that the next big debt maturity does not occur until October 2014.
But the company’s largest creditors, which include some of the most experienced distressed investors on Wall Street, will want their payday sooner rather than later. Among the creditors who have amassed large amounts of the power-generation affiliate’s debt are Leon Black of Apollo Global Management, Blackstone’s GSO Capital Partners and the California investment firm Franklin Resources.
There was no reply Monday evening to an e-mail seeking response sent to the advisory firm that is negotiating for the largest creditors.
The disclosure proposal was made after the expiration of a confidentiality period that the creditors and company had agreed to as part of the talks during which the creditors could not trade their stakes in the company’s debt.
Energy Future Holdings, formed in a deal during the heyday of the private equity boom, and formerly known as TXU, has struggled under continued low natural gas and energy prices.
But analysts say the company, which has more than $37.8 billion of debt, cannot stay its current course. The private equity owners, which include Kohlberg Kravis Roberts, TPG Capital and the private equity arm of Goldman Sachs, have written down the value of the $8 billion they and others sank into the deal to zero.
