Energy Future Holdings Corp. creditor negotiations failed and the power producer seeking to restructure almost $44 billion in debt will make an interest payment due tomorrow, people familiar with the situation said.
Talks fell apart after various creditor groups (0763895D:US) to the former TXU Corp. were unable to reach a consensus for a reorganization, said the people, who asked not to be identified because the deliberations were private. The distribution of $270 million in bond coupons buys the Dallas-based company and its lenders at least several months to negotiate a fresh deal with broader support while also raising the specter that they’ll be unable to reach mutual terms.
Investment firms from Avenue Capital Group LLC to Centerbridge Capital Partners LLC had been working since at least March on a bankruptcy plan for Energy Future, the target of a 2007 leveraged buyout that was the largest ever. Secured lenders, who are senior to the other debt holders and would be paid out first in a reorganization, didn’t want the coupon payments made as the funds go to more junior creditors.
The coupon payment shows “they need more time to negotiate,” Marc Gross, a New York-based money manager at RS Investments in New York who oversees about $4.5 billion in fixed-income funds, wrote in an e-mail.
Adam McGill, a representative for Energy Future, declined to comment.
Texas Competitive’s $1.83 billion of 10.25 percent bonds maturing in November 2015, which are due to pay interest on Nov. 1, jumped 4.625 cents to 7 cents on the dollar as of 4:33 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the highest level since July 24.
Texas’ largest electricity provider was debating whether to make the payment or file for bankruptcy, depending on the progress made in creditor talks. Debt holders have been locked in a series of confidential negotiations to determine how to divide ownership and new debt (0763895D:US) in a restructured company. At least five of those proposals were rejected.
Lenders including Apollo Global Management LLC (APO:US), Oaktree Capital Group LLC (OAK:US) and Centerbridge are part of a $19.5 billion class of first-lien debt holders that offered a proposal to compensate lenders at the Energy Future Intermediate unit with $800 million, two people said.
An unsecured group, which includes York Capital Management LP, Avenue and P. Schoenfeld Asset Management LP, demanded more than three times that amount, two of the people said. The committees couldn’t resolve the difference.
KKR & Co., Goldman Sachs Capital Partners and TPG Capital led the LBO, which was an investment 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.
KKR and TPG both value their investment in the power provider at 5 cents on the dollar, a plunge of 95 percent, according to a July 26 regulatory filing by KKR and a TPG quarterly report obtained by Bloomberg.
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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