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EFH disputes NextEra's right to collect $275M deal termination fee

Energy Future Holdings Corp. has asked a federal bankruptcy court judge to reject NextEra Energy Inc.'s attempt to collect a $275 million termination fee following their failed merger agreement.

The Public Utility Commission of Texas in late June swiftly rejected NextEra's request for a second rehearing tied to its $18.7 billion bid for Oncor Electric Delivery Co. LLC and a reorganized EFH, the bankrupt majority owner of Oncor. Regulators opposed NextEra's plans to use Oncor's finances to pay down $11 billion in debt at EFH, along with conditions that allowed NextEra to appoint Oncor's CEO and control its board.

NextEra on July 31 submitted an application to the U.S. Bankruptcy Court for the District of Delaware seeking payment of the $275 million termination fee as part of the court-approved merger agreement.

"The debtors seek to escape their contractual obligation to pay a termination fee that was litigated before, and approved by, this Court — a contractual provision that the debtors themselves insisted was critical to the contemplated merger and entirely proper," NextEra wrote in its filing. "NextEra seeks confirmation that the debtors' contractual commitments — and this court's previous order — will be enforced, notwithstanding the debtors' expedient desire to refuse payment to NextEra under pressure from creditors seeking to enhance their own recoveries."

EFH, which has since entered a $9 billion cash deal with Berkshire Hathaway Energy, denies it is obligated to pay the breakup fee and asked the court to rule the same. EFH said NextEra agreed to use "reasonable best efforts" to secure regulatory approval for the purchase of Oncor in a transaction that would have enabled the debtors "finally to emerge from these years-long Chapter 11 proceedings."

"But NextEra failed to live up to its end of that bargain," EFH wrote in its Aug. 3 complaint. "Not only did NextEra fail to obtain regulatory approval from the PUCT, which was harmful enough, but NextEra failed in the first instance to conduct itself in a manner reasonably calibrated to ever obtain that regulatory approval."

EFH argues that NextEra did not take the proper steps to engage intervenors in order to win their support. In addition, the Florida-based energy company did not seem willing to negotiate with Texas regulators over conditions tied to the transaction.

"NextEra had an affirmative requirement under the merger agreement and governing Delaware law to take all steps 'reasonably necessary, proper, and advisable' to solve problems and consummate the transaction," EFH added in its complaint. "NextEra was also required by the plan support agreement to use 'commercially reasonable efforts' to secure regulatory approval. It did neither, and, under these circumstances, and other circumstances to be further explored through discovery, NextEra is not owed a $275 million termination fee."

Activist hedge fund Elliott Management Corp. also signaled its objection to the termination fee, which would be payable five days after the consummation of any acquisition of EFH. Elliott has publicly disclosed its attempt to rival Berkshire's bid for EFH and Oncor.

Elliott is the largest creditor of EFH and is pitching a debt-to-equity swap that would value Oncor as much as $500 million more than the $18.1 billion implied enterprise value in Berkshire's proposal. Bankruptcy Judge Christopher Sontchi has agreed to give Elliott until Aug. 21 to arrange financing for the competing bid.

The court will hold a hearing Aug. 11 tied to the termination fee and scheduling matters.

Berkshire Hathaway Energy is a subsidiary of Berkshire Hathaway Inc.