Energy Future Holdings, the big Texas utility company formerly known as TXU, and its myriad related companies filed their Chapter 11 bankruptcy petitions in Wilmington, Del., on Tuesday morning.
Delaware?
The first to file was the Texas Competitive Electric Holdings Company, which most people have never heard of. Energy Future, of course, is incorporated in Texas and based there. Thus, the only way for it to file in Wilmington was as a case “related to†the case of Texas Competitive Electric, a holding company in the Energy Future group that happens to be a Delaware limited liability company.
But before Energy Future Holdings could file the remainder of its first-day motions, one of the company’s indenture trustees slipped in with a motion to transfer the case to Texas. It also filed a motion for what is known as a 2004 examination â€" a chance to ask the company lots of questions. The indenture trustee noted that Energy Future was mostly a Texas operation and perhaps its executives should spend a bit less time at the Hotel DuPont. The motion suggested that the company was seeking the most advantageous court for approval of the restructuring plan favored by senior lenders and management.
Indeed, it is somewhat rare for a utility company to file outside its home state. PG&E filed in California, and Public Service New Hampshire filed in, you guessed it, Manchester, N.H.
It will be interesting to see whether the indenture trustee’s motion gets some support from Texas regulators, who will have a big role to play in this case. The position of the United States Trustee’s office will also be interesting to watch, especially given the office’s recent moves in New York to object to cases filed in Manhattan with the full support of the parties.
If there was ever a big case that might be transferred out of Delaware or New York, Energy Future might be it. But remember that Delaware was the home to the Los Angeles Dodgers’ bankruptcy case, so who knows.
And it can’t be denied that there are real benefits to the parties to proceeding in front of an experienced judge, especially in a complex case. And Judge Christopher Sontchi, who has been assigned the case in Wilmington, certainly qualifies on that front.
Perhaps more the more interesting takeaway from the indenture trustee’s motion is the tone of hostility in the motion. The indenture trustee clearly feels as though they’ve been shut out of the deal-making. This could suggest that Energy Future’s trip through Chapter 11 might not be a smooth as they might hope.
Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.
