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Energy Future files alternative bankruptcy plan

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Essential Energy Insights - September 17, 2020

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Energy Future files alternative bankruptcy plan

filed a new bankruptcy reorganization plan May 1, after creditors backed out ofa prior plan for an investor group to acquire andconvert it into a real estate investment trust, or REIT. EFH attorneys filedthe latest reorganization plan morethan two years after the company declared Chapter 11 bankruptcywith a debt load of more than $40 billion.

Underthe previous plan, agroup of investors led by HuntConsolidated Inc. would acquire Oncor and convert it into a REIT, providingapproximately $13 billion to address EFH creditor claims at various levels. ThePublic Utility Commission of Texas approvedthe transaction March 24, but imposed several conditions regardingthe REIT's internal lease structure and tax savings that would be decided at alater date.

Becausethe PUCT order did not include all approvals necessary to consummate EFH'sbroader restructuring plan, as of April 30, certain parties were no longercommitted. As a result, according to court filings, a group of senior creditorsfor EFH's unregulated business, TexasCompetitive Electric Holdings Co. LLC, delivered a terminationnotice causing the court-approved reorganization plan to be null and void.

Hunt,meanwhile, said it will continue to pursue the acquisition and REIT conversionof Oncor, noting the latest plan submitted by EFH still allows for such anoption as a way to exit bankruptcy. Hunt has requested a rehearing with Texas regulators for theirapproval of the Oncor deal, and the PUCT has the matter on its docket for ameeting scheduled for May 4.

"The ability of parties to the bankruptcyproceeding to file notice of termination on or after April 30 is exactly whatwe pointed out in our motion for rehearing," Hunt Consolidatedspokesperson Jeanne Phillips said in a statement. "The termination noticeserved [May 1] does not preclude our transaction. The new plan filed by EFH …explicitly contemplates a potential REIT transaction under our currentproceeding before the Public Utility Commission of Texas (PUCT). This isconsistent with comments made in Thursday's , during whichEFH counsel emphasized that the alternative plan under consideration wouldallow ongoing pursuit of a REIT transaction and related PUCT application."

EFH has asked the bankruptcy court forconfirmation hearings on its latest plan to commence by Aug. 1, and has askedcreditors to vote on it by July 22. Under the latest plan, like itspredecessor, EFH's unregulated business would be spun off, tax-free, to itscreditors. That side of EFH's business, under TCEH, includes retail andcompetitive generation businesses TXUEnergy Retail Co. LLC, LuminantEnergy Co. LLC and LuminantGeneration Co. LLC.

On the regulated side, the plan lays out twooptions for EFH and Oncor parent EnergyFuture Intermediate Holding Co. LLC. Under the "equityinvestment scenario," certain investors, potentially including existingcreditors, would provide a "new-money," contribution to pay EFH andEFIH creditors in cash or reorganized EFH common stock. Under the "standalone,"scenario, existing creditors could elect to receive cash or reorganized EFHcommon stock in proportion to their claims. In the filing, EFH states that aREIT reorganization would not be a condition to consummation of any planrelated to parent company EFH or the utility side of its business.

The investment scenario appears to leave thedoor open for interested strategic suitors to attempt once more to acquireOncor. Topping that list would be NextEraEnergy Inc., which has maintained in EFH's bankruptcyproceedings, and in the Hunt investor group's .

Asked about lingering plans to pursue Oncor on April28, NextEra Chairman and CEO James Robo did not evince great interest. "Wehave a pretty tight screen on what we would be willing to do. And it would haveto make sense both strategically for us and would have to make sensefinancially and would have to, in our view, create significant shareholdervalue. I think that's all that I am willing to say at this point on Oncor orany of the rest of the M&A," Robo said. "There's no imperativefor us to do regulated M&A. We don't have to do it."