Energy Future Holdings Corp. won court approval to shed about $30 billion in debt and split into two separate companies, taking a step closer to unraveling the biggest — and perhaps the worst-timed — leveraged buyout ever.
Thursday's ruling means the bifurcated Energy Future can exit bankruptcy in a few months, provided Texas regulators bless the reorganization and the Dallas-based company wins the IRS' endorsement of the tax structure behind the deal.
With lower debt, the two companies will be in a better position to weather the difficult market conditions that caused the $48 billion leveraged buyout to founder about seven years after it was completed under the leadership of KKR & Co. and TPG. The new plan wipes out the LBO sponsors' equity.
The plan “easily meets” the public policy goals of the Bankruptcy Code, U.S. Bankruptcy Judge Christopher Sontchi said at a hearing Thursday in Delaware.
Energy Future's unregulated power-generating side will go to senior lenders owed about $24 billion. Oncor, the regulated power-line side, will go to a coalition of lower-ranking creditors and Hunt Consolidated Inc., a Dallas-based oil and gas, real estate and power company.
The group taking over Oncor includes Anchorage Capital Group, Arrowgrass Capital Partners, Avenue Capital Group, BlackRock, Centerbridge Partners, GSO Capital Partners and the $132 billion Texas Teacher Retirement System, Austin, according to a statement from Hunt.
The power-generating business will go to a group that includes Angelo, Gordon & Co., Apollo Management Holdings, Brookfield Asset Management, Fortress Credit Opportunities Advisors, Oaktree Capital Management and Paulson & Co.
When the two companies exit bankruptcy, the Oncor side will be publicly traded, said Tom Lauria, an attorney with White & Case, the main law firm for creditors in the Hunt-led coalition.
The Hunt plan has the backing of almost all creditors owed money by the generating unit, Texas Competitive Electric Holdings Co. Different groups of lower-ranking creditors, owed money by the power-line unit also signed onto the reorganization proposal, leaving a handful of minor objections.
In 2007, when the company — formerly known as TXU Corp. — was taken private, investors were betting that energy prices would rise enough to justify the cost of the deal. Instead, the global financial crisis hit, followed by the fracking boom, and prices plunged.
Energy Future's April 2014 Chapter 11 filing has been followed by bankruptcies in the coal mining, oil drilling, and oil field services sector. Among those casualties is another KKR investment, Samson Resources Corp.
