Theunregulated side of Energy FutureHoldings Corp. is working to gain lender support for its ownreorganization plan ahead of bankruptcy court hearings scheduled for Aug. 17.
The courtapproved the proposed $4.25 billion debtor-in-possession, or DIP, refinancingfacility for EFH subsidiary TexasCompetitive Electric Holdings Co. LLC on June 24. The TCEH creditagreement includes a $750 million revolving credit facility, a $2.85 billionterm loan B facility and a $650 million term loan C facility. The new creditfacilities will initially refinance TCEH's existing DIP credit facilities andthen convert to permanent exit financing.
TCEHis the corporate parent of TXUEnergy Retail Co. LLC, Luminant Energy Co. LLC and . TCEH isthe largest electric power generator and retail provider in Texas, with morethan 16 GW of generation and more than 1.7 million retail customers.
Anarranger group led by Deutsche Bank launched the DIP refinancing facility July12, according to LCD, an offering of S&P Global Market Intelligence. In itspresentation to prospective lenders July 12, TCEH said it plans to exitbankruptcy with the lowest leverage of any independent power producer at 1.5xnet leverage, based on 2016 estimated EBITDA of $1.52 billion. Under thecurrent EFH restructuring plan, TCEH would be spun off to first-lien creditorsas a stand-alone entity, with those senior creditors receiving a pro rata shareof the reorganized TCEH's common stock. The company aims to reduce TCEH's debtload of $34.2 billion to $3.5 billion at the reorganized entity.
EFHfiled a new reorganizationplan after some creditors backed out of a deal in which an investorgroup led by Hunt ConsolidatedInc. had planned to acquire Oncor Electric Delivery Co. LLC, on the regulated sideof the company, or "E-Side." The current plan has options for Oncorto be acquired by a new strategic buyer or provide existing creditors on the regulatedside cash or common stock proportional to their claims.
Undereither scenario, TCEH, referred to in court documents as the"T-Side," would be spun off to creditors. But that the InternalRevenue Service has not yet issued a ruling that such a spinoff would betax-free, and that an unfavorable ruling could trigger a cash tax liability of$4 billion. Responding to this possibility, an EFH creditor on July 11 filed amotion asking for mediation on certain tax issues. "As the T-Sideconfirmation hearing approaches, the disputed issues dividing the E-Side andT-Side estates have not been resolved," attorneys for Contrarian CapitalManagement LLC wrote in the filing.
At issue is a provision under TCEH's plan in which it woulduse $1 billion in net operating losses, or NOLs, owned by EFH to offset aportion of its step-up in tax basis if the IRS rules the spinoff a tax-freetransaction. "TCEH no longer has any claim to payment for EFH's use of EFH'sNOL, and allowing the use of the NOLS without any additional consideration tothe EFH Debtors provides the TCEH Debtors with a double recovery in addition toa deal that was negotiated under the Settlement Agreement," attorneys forContrarian wrote. As of the end of 2016, EFH projects to have $8.2 billion inNOLs.
U.S. Bankruptcy Court Judge Christopher Sontchi set ahearing on Contrarian's request for July 20.
SNL Energy and LCD areofferings of S&P Global Market Intelligence, which is owned by S&PGlobal Inc.