TXU Parent Pitches Prepackaged Bankruptcy Filing to Creditors

Energy Future Holdings Corp. confirmed Monday in an 8-K that it has been in discussions with creditors concerning a consensual restructuring of subsidiary Texas Competitive Electric Holdings Company LLC's (TCEH) $32 billion of debt, including a prepackaged plan of reorganization under Chapter 11 of the United States Bankruptcy Code.

"[T]he Companies and the Creditors recently engaged in discussions with respect to the Companies' capital structure, including the possibility of a restructuring transaction. ... The Companies' objectives in presenting these proposed changes were to create a sustainable capital structure and maximize enterprise value by, among other things, minimizing time spent in a restructuring through a proactive and organized solution; minimizing any potential tax impacts of a restructuring; maintaining the Companies in one consolidated group; maintaining focus on operating EFH Corp.'s businesses; and maintaining the Companies' high-performing work force," EFH said in the 8-K.

"The Companies and the Creditors have not reached agreement on the terms of any change in the Companies' capital structure. The principals of the Companies and the Creditors are currently not engaged in ongoing negotiations," EFH said in the 8-K.

"The proposed changes to the Companies' capital structure discussed with the Creditors (the 'Restructuring Proposal') included a consensual restructuring of TCEH's approximately $32 billion of debt (as of December 31, 2012). Specifically, to effect the Restructuring Proposal, EFCH [Energy Future Competitive Holdings Company], TCEH, and certain of TCEH's subsidiaries would implement a prepackaged plan of reorganization by commencing voluntary cases under Chapter 11 of the United States Bankruptcy Code. Under this proposed plan of reorganization, the TCEH first lien creditors would exchange their claims for a combination of EFH Corp. equity, in an amount to be negotiated, and their pro rata share of $5.0 billion of cash or new long-term debt of TCEH and its subsidiaries on market terms. Following the issuance of EFH Corp. equity interests to the TCEH first lien lenders under the proposed plan of reorganization, the Sponsors would hold a to-be-negotiated amount of the equity interests in EFH Corp. Following implementation of the Restructuring Proposal, EFH Corp. would continue to hold all of the equity interests in EFCH and EFIH [Energy Future Intermediate Holding Company LLC], EFCH would continue to hold all of the equity interests in TCEH, and EFIH would continue to hold all of the equity interests of Oncor Holdings. TCEH also would obtain access to $3.0 billion of new liquidity through a $2.0 billion first lien revolver and a $1.0 billion letter of credit facility. TCEH would also issue $5.0 billion of new long-term debt," EFH said.

As noted above, the Companies and the Creditors have not reached agreement on the terms of any change in the Companies' capital structure. "However, the Creditors conveyed to the Companies that they would be willing to consider the Restructuring Proposal, if among other things, (i) the Restructuring Proposal adequately addresses and compensates Creditors for the risks and consequences of exchanging a portion of the Creditors' senior secured claims against TCEH into EFH Corp. equity, (ii) the amount of post-reorganization debt at TCEH to be distributed to TCEH first lien creditors were materially increased, (iii) in the allocation of EFH Corp.'s equity between TCEH and EFH Corp. stated in the Sponsor Proposal, the value of TCEH and EFH Corp. were materially modified such that the TCEH first lien creditors would receive materially greater value, and (iv) EFIH's negative free cash flow is addressed and a sustainable debt capital structure is achieved for EFIH and EFH Corp. without reliance on TCEH's cash flows," EFH said in the 8-K.

"The Companies expect to continue to explore all available restructuring alternatives to facilitate the creation of sustainable capital structures for the Companies and to otherwise attempt to address the Creditors' concerns with the Restructuring Proposal and Sponsor Proposal. The Creditors have directed their advisors to continue to work with the Companies and their advisors to explore further whether the parties can reach an agreement on the terms of a consensual restructuring," EFH said.