Energy Future Holdings Corp. is positioning itself to make interest payments of about $270 million as talks with creditors over a possible bankruptcy approach a Nov. 1 deadline, according to two people with knowledge of the situation.
The Texas power producer’s board is planning to pay the coupons to junior bondholders (TXU:US) unless an agreement is reached, said the people, who asked not to be identified because the discussions are private. The board still has until tonight in New York to decide to skip the payment, after which Energy Future would have a 30-day grace period to either release the funds or file for bankruptcy, one of the people said.
Creditors are in discussions with the Dallas-based company over how to divide ownership and new debt (0763895D:US) in a restructuring. Senior lenders want the target of the largest leveraged buyout ever to file for Chapter 11 protection without making the payments, which would cut into their recoveries.
Secured lenders including Oaktree Capital Group LLC (OAK:US), Apollo Global Management LLC (APO:US) and Centerbridge Capital Partners LLC have submitted a new proposal seeking a consensual reorganization plan, the other person said.
The lenders have been seeking to take majority ownership of a restructured company. Confidentiality agreements that allow investors to access private information to facilitate the talks lapse today, one of the people said.
Adam McGill, an Energy Future spokesman, didn’t immediately return telephone calls seeking comment on the discussions from yesterday’s board meeting.
Texas Competitive Electric Holdings Co.’s $1.83 billion of 10.25 percent bonds maturing in November 2015, which are due to pay interest on Nov. 1, jumped 3 cents today to 5.375 cents on the dollar at 9:08 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The Wall Street Journal, citing unidentified people, reported late yesterday on its website that the board met throughout the day and was leaning toward making the payment.
Meeting the interest payment would potentially buy Energy Future until next March to continue negotiating with creditors to gain a consensus, one of the people said.
KKR & Co., Goldman Sachs Capital Partners and TPG Capital led the $48 billion takeover of the former TXU Corp. 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.
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