Energy Future Holdings, the bankrupt Texas power giant, is warning that its restructuring plans could be put on hold if the IRS decides to pursue a more than $7 billion tax bill against the company.
Dallas-based EFH is planning to sell off the transmission company Oncor at auction early next year. And in court papers filed in U.S. Bankruptcy Court late Wednesday, EFH warned if the IRS decides the power company must pay the taxes it could squash the deal.
“EFH does not and will not have sufficient assets to pay more than an insignificant amount of this claim, a [IRS ruling] would likely lead to protracted litigation between the various interested parties — including the IRS,” the court document read.
Companies including Hunt Consolidated, NextEra Energy, Berkshire Hathaway and CenterPoint Energy are reportedly examining a potential bid for Oncor. The federal bankruptcy judge in Delaware has ruled that EFH doesn’t have to publicly name the bidders.
In April EFH, the former TXU Corp., filed for Chapter 11 protection from more than $40 billion in debt largely amassed in 2007 during what has been described as the largest leveraged buyout in U.S. history.
EFH’s owners, which include private equity firms KKR & Co. and TPG, initially planned to sell Oncor to a creditors group aligned with Hunt.
But then Florida-based NextEra bested Hunt with an offer valued at more than $15 billion, forcing EFH to scrap its initial reorganization plan.
Now the company is left to wait for a ruling from the IRS.
The question of tax liability hung over negotiations between EFH and its creditors in the run-up to bankruptcy. But ultimately attorneys agreed on a strategy theoretically allowing EFH to separate its power plants and retail business from Oncor’s transmission lines without triggering a tax bill.
Other companies have pursued similar strategies, but there’s no guarantee the IRS will rule in EFH’s favor, said Stephen Pezanosky, a Dallas bankruptcy attorney.
“It is all facts and circumstances,” he said in an email.
Follow James Osborne on Twitter at @osborneja.
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