Restructuring plan on the ropes, EFH warns judge

The restructuring deal Energy Future Holdings reached with creditors earlier this year will probably have to be scrapped, one of the company’s attorneys told a U.S. bankruptcy judge in Delaware on Friday.

Attorney Edward Sassower said unless terms can be worked out with dissident creditors before Aug. 8, EFH would toss the plan, a potentially damaging blow to hopes for a quick 11-month trip through bankruptcy court.

Rising prices of EFH debt have changed the landscape of the negotiations, Sassower said. He described the restructuring plan as the best deal available at the time and said the company might now be able to achieve higher value for its assets.

The development comes as a bidding war has broken out between Florida-based power company NextEra Energy and a group led by Hunt Consolidated and the Teacher Retirement System of Texas. The prize is EFH’s transmission arm, Oncor, which counts 3.5 million customers in Texas.

Earlier this week, NextEra proposed a merger it said would raise the valuation of Oncor $500 million beyond its previous offer. Hunt made plain it’s not going away. And the discussion among attorneys is that Oncor will probably go up for auction toward the end of the summer.

After billions of dollars in losses, the former TXU Corp. filed for bankruptcy in April. Seven years after the company was taken private by private equity firms KKR & Co. and TPG, EFH had a $40 billion debt load that had become unsustainable since a fall in wholesale power prices in Texas, the company said in bankruptcy filings.

It proposed a restructuring plan that would split its power generation and retail arms, Luminant and TXU Energy, from its transmission arm Oncor.

The plan was worked out in the months before bankruptcy with some of EFH’s largest creditors, such as Apollo Global Management and Fidelity Investments. Critical to the deal was the support of the unsecured creditors in Oncor’s holding company, Energy Future Intermediate Holding. Among them were New York investment firms such as Third Avenue Management, which began buying up debt once the $45 billion buyout of EFH appeared to be faltering.

Objections came almost immediately from various creditor groups outside the deal, who argued they were being unfairly compensated for their debt at the expense of favored creditors like Fidelity.

The admission by Sassower on Friday represented a victory for creditors, who have pushed U.S. Bankruptcy Judge Christopher Sontchi to slow the process to better allow them to assess the full value of the company.

The restructuring agreement “sounds like it’s going to die,” Thomas Lauria, an attorney representing opposing creditors, told Bloomberg News.

Follow James Osborne on Twitter at @osborneja.