It took three courtrooms to accommodate the lawyers, advisers and observers gathered for the first hearing in Energy Future Holdings Corp.’s bankruptcy in Wilmington, Delaware.
That still left the main courtroom with standing room only.
Given the clamor over the billions at stake, the size of yesterday’s crowd still surprised many of the attendees. More than 100 people jammed the main courtroom as U.S. Bankruptcy Judge Christopher Sontchi, in an early order of business, set a hearing next month on Energy Future’s request to use a $5.4 billion loan to fully repay some creditors, part of the company’s plan to restructure about $40 billion in debt.
About a dozen people stood near the doors, prompting Sontchi to warn against stealing seats as the hearing broke for lunch.
“It’s just like in law school,” Sontchi said as lawyers laughed. “Return to your own seat.”
Energy Future’s restructuring plan faces a challenge from second-lien noteholders (TXU:US) owed about $1.6 billion. The plan would spin off Energy Future’s deregulated business to senior creditors, leaving holders of the unit’s lower-ranked debt with less than $350 million of the $7.7 billion they are owed, according to court filings. Energy Future may be able to afford to give them more, Edward S. Weisfelner, a lawyer for the junior creditors, told Sontchi.
“We are desperate to have our day in court,” he said.
Potential changes to how electricity is regulated in Texas and a rise in natural gas prices next year may boost the company’s value enough to increase the junior creditors’ recoveries, Weisfelner said. His clients are worried that Energy Future is trying to push the case forward so quickly that they won’t have time to make that argument, said Weisfelner, a partner with Brown Rudnick LLP.
Energy Future has said it intends to leave bankruptcy in 11 months. That may be an optimistic timetable for when the last of the creditor crowd will go away, given the 24-month term of the loan it got to finance the bankruptcy.
The company yesterday received approval to pay some fees on the $5.4 billion loan. The loan, if approved by Sontchi at a hearing set for June 5, would go to “promptly repay” about $4 billion owed to senior lenders of the Energy Future Intermediate Holding unit, company attorney Stephen Hessler said. A second, $1.9 billion loan would be used to repay lower-ranked creditors.
At the beginning of today’s hearing, Sontchi approve a separate loan for the company’s main operating subsidiary, Texas Competitive Electric Holding Co. He signed an order giving TCEH interim permission to borrow more than $2 billion after the company and creditors who had opposed the loan worked out final wording.
Energy Future’s 5.55 percent bonds due in November climbed 7.5 percent to 43 cents on the dollar today after trading opened, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
To keep the company operating for the next 24 hours without problems, Sontchi authorized managers to spend about $20 million to pay workers, issue refunds to customers and handle other immediate needs.
The company had initially asked to borrow $2.7 billion now and more later. Sontchi said he may reduce that amount by more than $300 million.
If Weisfelner’s clients had their way, Sontchi wouldn’t get a chance to rule on the loan for the company’s other unit, Energy Future Intermediate Holding Co. The second-lien creditors say the fact that a unit of Energy Future is incorporated in Delaware isn’t enough to keep the case in Wilmington. They want the proceedings moved to Texas, where Dallas-based Energy Future does all its business, has all its operations and is overseen by state utility and environmental regulators.
Energy Future, which was taken private in a record $48 billion leveraged buyout in 2007, filed for court protection April 29 after falling natural gas prices pulled down electricity rates in Texas. It listed $49.7 billion in liabilities, the most ever for an energy-industry bankruptcy and the second-most for a Delaware case, behind only Washington Mutual Inc., according to data compiled by Bloomberg News.
Yesterday, Sontchi’s courtroom was full an hour before the hearing started at 9:30 a.m. Two other courtrooms handled the overflow, equipped with monitors to allow the crowd to follow the proceedings.
Security guards used two X-ray machines and metal detectors on the floors above and below Sontchi’s courtroom to speed up the screening process. Once inside, lawyers and professionals in dark suits sat shoulder to shoulder on the thinly padded wooden pews, some trying to type on laptops with elbows tucked awkwardly to their sides.
Sontchi authorized Energy Future to pay some fees for the $5.4 billion loan. Creditors repaid under the loan would have the option to either settle for less than any early-payoff fee they may be owed, or fight Energy Future in court over the so-called make-whole claims, said Hessler, of Kirkland & Ellis LLP. The company said it doesn’t owe any make-whole payment.
The hearing is scheduled to continue today, when Sontchi is set to consider giving the company permission to pay employees and key vendors.
During a short break just before yesterday’s eight-hour hearing ended, Wilmington bankruptcy attorney Maria Aprile Sawczuk announced to the crowd that a happy hour would be held in a nearby bar, with some of the money going to benefit charity. Within minutes, several attorneys headed out the door.
The case is Energy Future Holdings Corp., 14-bk-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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