Reuters reports it took more than seven hours of contentious arguments in court before the bankruptcy court made a decision to approve interim loans for the biggest power company in the state of Texas, Energy Future Holdings Corporation.
The $2.7 billion dollar loan was originally proposed, but after testimony Judge Christopher Sontchi authorized only a paltry $20 million could be spent. But the battle is not over. Energy Future Holdings Corporation and their creditors will be back in court next week to discuss the balance of the money, and creditors will be given a chance to discuss their concerns over scheduling, value and how to administer the bankruptcy case.
Energy Future Holdings one of the largest Chapter 11 bankruptcies in history
Energy Future Holdings Corp. filed one of the largest Chapter 11 bankruptcies on Tuesday. They have worked for a year to negotiate with their creditors but have not been able to come to an agreement. According to a lawyer for the company, the complexity of the business and the number of creditors will make this case “wildly complicated.”
Under discussion is how the company can be divested from its parent company Luminant power plant and TXU Retail electricity business. According to Reuters, “They are also considering turning the holding company that owns those assets over to lenders.” Texas’s largest network of power lines, which is controlled by Oncor, could also be sold to another group of unsecured creditors.
Objections were voiced by creditors of Texas Competitive Electric Holdings Co. If the plans above were approved they would be left with less than 3 percent of the funds they are now due, which totals an estimated $1.6 billion.
Reorganization called fraudulent transfer
The lowest priority creditors of the TXU Retail and Luminant business have called the deal to reorganize the corporate family a potential fraudulent transfer. Lawyers have also said Energy Future has undervalued the company. According to Reuters, the undervaluation “would steer those assets into the hands of investment firms that hold the $24.4 billion in loans.”
Others close to the deal argue this is just the starting point for negotiations. Alan Kornberg of Paul, Weiss, Rifkind, Wharton & Garrison said, “This is not the end of the story. You have to start somewhere.” He said he will continue to work with the creditors he represents to gain support.
Ownership of Oncor business to be swapped
Another part of the suggested deal would allow ownership of Oncor to two groups of unsecured creditors. Oncor currently operates power lines in the state of Texas and would borrow an estimated “$7.3 billion to pay off higher-ranking creditors of the Oncor business.”
There has been some opposition to this deal, however. Creditors argue the agreement may not provide them with “added payment for retiring their debt prior to maturity.” According to Reuters, the company “will litigate with creditors that hold out for that added money, known as a make-whole payment.”
Currently Energy Future Holdings Corp owes an estimated $49.7 billion to hedge funds and investment firms. Its $36.4 billion in assets make it one of the biggest non-financial Chapter 11 filings in United States history.