Energy Future Holdings Corp., the power producer preparing for bankruptcy, added two directors to its boards before a vote this week on whether to make a crucial interest payment, said a person with knowledge of the situation.
At least one of the newly appointed board members is independent, said two people, who asked not to be named because the process isn’t public.
The former TXU Corp., the subject of the largest leveraged buyout ever, faces a Nov. 1 deadline to make about $270 million in interest payments (0763895D:US). Directors of companies approaching bankruptcy are required to shift their priorities to benefit creditors rather than equity holders.
“You want independent directors to sign off on those decisions,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business in Ann Arbor. “You don’t want the decisions to be attacked as being self-interested rather than for the benefit of the company and its creditors.”
Adam McGill, a spokesman for Dallas-based Energy Future, declined to comment.
Senior lenders want Energy Future to file for Chapter 11 before making the coupon payments (TXU:US) to boost their recoveries. Creditors have been negotiating this week over how to divide ownership and new debt (0763895D:US) in a restructuring of the biggest power plant owner in Texas.
Secured lenders including Oaktree Capital Group LLC (OAK:US), Apollo Global Management LLC (APO:US) and Centerbridge Capital Partners LLC lead a group poised to seize majority ownership of a restructured Energy Future. They’re in discussions with an enlarged group of other debt holders and the company’s existing owners.
KKR & Co., Goldman Sachs Capital Partners and TPG Capital led the $48 billion takeover in 2007. The investment was predicated on rising gas prices. Instead, they fell as the development of hydraulic fracturing created a surge in U.S. gas supplies, triggering 10 straight quarterly losses (TXU:US) at the company since 2011.
TXU’s acquirers paid $69.25 a share, a 15 percent premium when the deal was announced on Feb. 26, 2007. Natural gas prices plunged 72 percent from a July 2008 peak as shale drilling expanded, depressing rates the company could charge for its power. Power prices depend on gas costs in most markets because plants that use the fuel usually provide the marginal power needed to meet demand. Coal is easy to store, and plants powered by it are usually slow to be turned on and off.
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