Energy Future tells judge lender fight cost $6,000 an hour

Energy Future Holdings Corp.’s finance chief has told a judge that the bankrupt company paid six lawyers about $1,000 an hour each to fight creditors trying to change its rules for selling a prize asset.

At a hearing last week, chief financial officer Paul Keglevic, defending Dallas-based Energy Future’s proposal to auction the electricity distributor Oncor, said he didn’t know exactly how big a tab he’d run up for lawyers to draft sale procedures and fight the creditors.

“I don’t see their invoices,” he said on Oct. 20, and the employee who handles the bills “keeps me away from the legal costs.” He did say he knew the hourly charge for the average partner at Kirkland & Ellis LLP, the company’s bankruptcy counsel: about $1,000.

Ed Weisfelner, a lawyer for junior creditors seeking to change the auction procedures, asked Keglevic to count the senior Kirkland attorneys in court that day for the company. There were six. Partners often bring more junior lawyers to court, boosting the hourly tab.

Executives aren’t often grilled on fees in bankruptcy court by lenders, and Weisfelner’s questioning is emblematic of the troubles besieging Energy Future’s $42 billion restructuring effort. The company has already been forced to scrap part of its reorganization plan, and an effort to auction off Oncor is behind schedule.

By law, Energy Future should ask a judge before spending money to promote an auction, which it hadn’t done, lawyers said. Moreover, money spent on fees might mean lower payments for junior creditors, who might mind less if the fees were paid to help them, not fight them.

“Junior creditors often think fees are too high,” Stephen Lubben, a bankruptcy law professor at Seton Hall University in Newark, N.J., said in an email, adding that fee disputes themselves can be costly. “It is rare that a creditor wants to raise that issue, because it means spending more money in a case where they are already not being paid in full.”

Keglevic valued a mid-year offer for Oncor from NextEra Energy Inc. at $18 billion. Some creditors have said Energy Future could attract higher prices by changing the rules for bidders, including the sale’s timing and implied tax structure.

Before Juno Beach, Fla.-based NextEra came forward, Energy Future was set to lock in a $42 billion bankruptcy restructuring that would have left some creditors out in the cold. Pressure from eight lender groups made it ditch part of that plan and invite bids for Oncor, the company’s best asset.

While initial offers will be kept secret, Energy Future has said about 10 parties signed confidentiality agreements to see relevant documents. NextEra, CenterPoint Energy Inc., Warren Buffett’s Berkshire Hathaway Inc. and Hunt Consolidated Inc. are among them, said people familiar with the matter who asked not to be named because the process is private.

Linda Sandler,

Bloomberg News