The day of reckoning for Energy Future Holdings â€" the troubled Texas utility haunted by a huge private-equity buyout  - may be delayed by a few more months.
The company is currently inclined to make a $270 million interest payment to bondholders at an unregulated wholesale power subsidiary known as Texas Competitive Electric Holdings, people briefed on the matter said on Wednesday. The payment is due on Friday.
By paying the interest, Energy Future Holdings will stave off a Chapter 11 filing, delaying for now what experts in the bankruptcy world expect to be one of the messiest cases in years. The company, formerly known as TXU, was taken private in 2007 for $45 billion at the height of the credit boom, adding tens of billions of dollars in debt.
While the deal by Kohlberg Kravis Roberts, TPG and the private equity arm of Goldman Sachs set a record for biggest-ever leveraged buyout, it saddled the company with what is now more than $40 billion in debt. And the premise of the deal â€" that the utility would be able to pay down the debt as natural gas prices rose â€" quickly faltered as prices instead fell, leading to a steep drop in revenues and 10 consecutive quarters of net losses.
Those private equity firms are now grappling with several classes of creditors, largely comprised of hedge funds and debt investors, over a prearranged restructuring plan that would shorten Energy Future’s stay in Chapter 11.
For now, the company can continue operating normally. It has disclosed that it possesses more than $1.3 billion in cash and available credit, and the next significant debt payment isn’t due until next fall. But a decision to pay the interest due on Friday could strain Energy Future’s attempt to reach an agreement over a bankruptcy roadmap.
A group of senior lenders to Texas Competitive Electric, which says it is owed roughly $26 billion, has opposed paying the $270 million interest payment. Their argument: the money would be going to creditors who are supposed to be paid after the senior lenders in a bankruptcy filing.
Energy Future and its various creditors remain substantially far from agreement on a prearranged bankruptcy plan, according to people briefed on the negotiations.
News of the company’s inclination to make the interest payment was reported earlier by The Wall Street Journal.
