By Tom Kleckner
With its effort to convert its Oncor transmission and distribution utility into a real estate investment trust (REIT) foundering, Energy Future Holdings filed a new bankruptcy plan Sunday.
The Chapter 11 reorganization plan, filed with the U.S. Bankruptcy Court for the District of Delaware, is the latest attempt by EFH to emerge from a $42 billion bankruptcy now two years old (14-bk-10979). The company asked for a confirmation hearing by Aug. 1; creditors are supposed to be able to vote on the deal by July 22.
Under the new plan, EFH said it still wants to spin off its Luminant generation and TXU Energy retail businesses to senior creditors. The difference this time is EFH would allow the creditors to take control of those assets without waiting for an Oncor deal.
The Wall Street Journal named Florida-based NextEra Energy, which has pursued Oncor since 2015 and intervened in Oncor’s docket with the Public Utility Commission of Texas (#45188), as a potential suitor.
Oncor, which delivers power to more than 3 million homes and businesses in North and West Texas, is estimated to be worth as much as $20 billion. Under the terms of EFH’s original bankruptcy filing, Oncor’s sale would have funded the exit plan.
Privately held Hunt Consolidated has also been attempting to acquire Oncor for years, hoping to pair it with its Sharyland Utilities, which operates in portions of West and South Texas. The Hunt group and EFH investors received approval March 24 from the Public Utility Commission of Texas to split Oncor into a REIT and a second company, which would rent the facilities owned by the former. (See Texas Commission Approves Oncor REIT Structure.)
But the PUCT’s order slapped numerous conditions on the proposed deal that made it less attractive to investors, including requiring federal tax savings be set aside for possible refunds to customers. The Hunt group’s proposed REIT structure would have allowed them to funnel as much as $250 million a year in tax savings to shareholders.
Sixteen Dallas business and political leaders, including Ross Perot, former U.S. Sen. Kay Bailey Hutchison and Roger Staubach, filed a letter with the PUCT last week asking the commission to reconsider its order.
EFH said in its Chapter 11 filing Sunday that because the PUCT’s order “did not include all of the approvals required for consummation” of the original plan, investors party to the Oncor spinoff elected not to extend an April 30 deadline that gave the Hunt group exclusive rights to the acquisition. The Hunt group responded by choosing not to put up $50 million to retain those rights for an additional 30 days, sending Oncor back to square one.
During a bankruptcy court hearing April 28, the Hunt group’s lead attorney said the PUCT’s conditions and IRS concerns about continued tax benefits from REITs had soured the deal.
Oncor declined to comment. In a statement, Hunt indicated it may still pursue its original plan, saying the “termination notice served earlier [Sunday] does not preclude our transaction. The new plan filed by EFH early this morning explicitly contemplates a potential REIT transaction under our current proceeding before the [PUCT].”
The Hunt group had asked the PUCT for a rehearing, which is still scheduled to take place Wednesday. EFH legal counsel said during the bankruptcy court hearing that an alternative plan under consideration would allow the pursuit of a REIT.
EFH was the result of a $48 billion leveraged buyout of TXU Corp. in 2007. Investors led by KKR and TPG Capital bet on rising energy prices; instead, they found themselves saddled with $42 billion in debt following the 2008 global financial crisis and plunging gas prices because of the fracking boom.
A U.S. bankruptcy judge in December approved EFH’s plan to split into two separate companies — Oncor and the unregulated power generation and retail arms, Luminant and TXU Energy, respectively — wiping out the buyout sponsors’ equity. The Luminant-TXU Energy businesses would go to senior lenders owed about $24 billion.
