Energy Future Holdings Raises Specter of Default, Bankruptcy

Energy Future Holdings, parent of TXU and Luminant, has noted in its annual 10-K filing that an acceleration in repayment of all borrowings demanded by noteholders could cause the company or the applicable subsidiary to go into, "bankruptcy, liquidation or insolvency."

Certainly, the challenges posed by EFH's large debt load and interest payments have been well documented, and certain analysts have forecast restructuring as necessary and likely for several years.

However, this is the first time EFH has so specifically addressed the bankruptcy, liquidation or insolvency risk in its 10-K.

Specifically, in the 10-K for fiscal 2012, EFH said:

"A breach of any of these covenants or restrictions could result in an event of default under one or more of our debt agreements at different entities within our capital structure, including as a result of cross acceleration or default provisions. Upon the occurrence of an event of default under one of these debt agreements, our lenders or noteholders could elect to declare all amounts outstanding under that debt agreement to be immediately due and payable and/or terminate all commitments to extend further credit. Such actions by those lenders or noteholders could cause cross defaults or accelerations under our other debt. If we were unable to repay those amounts, the lenders or noteholders could proceed against any collateral granted to them to secure such debt. In the case of a default under debt that is guaranteed, holders of such debt could also seek to enforce the guarantees. If lenders or noteholders accelerate the repayment of all borrowings, we would likely not have sufficient assets and funds to repay those borrowings."

Now, similar language to the above appears in the prior 10-K covering fiscal 2011.

What is new in the fiscal 2012 10-K is the immediately following line: "Such occurrence could result in EFH Corp. and/or its applicable subsidiary going into bankruptcy, liquidation or insolvency."