Energy Future Creditors, Lawyers Ready Chapter 11 Battle

Energy Future Holdings Inc.’s long-planned restructuring got off to a raucous start, with high-priced legal talent ready to do battle on behalf of creditors unhappy with the restructuring strategy.

The Dallas power seller (formerly known as TXU Corp.) on Tuesday filed for bankruptcy protection in Wilmington,Del., saying it had agreements with key creditors on a restructuring that would split the company and hand off pieces to appease top-ranking creditors. With some $42 billion in funded debt to deal with, and a distressed business, Energy Future could not please everybody. It didn’t.

Brown Rudnick LLP’s Edward Weisfelner had a protest on file less than 15 minutes after the Chapter 11 petition hit the docket Tuesday, calling for a change of venue for the company’s bankruptcy case. Speaking for the trustee looking out for nearly $1.6 billion in secured second-lien notes attached to the company’s Texas Competitive Electric business, Mr. Weisfelner said the company ignored his clients through months of restructuring talks.

Additionally, the trustee is demanding a probe into alleged mismanagement and conflicts that it believes may have tainted the deals Energy Future wants to push through bankruptcy court. “Now is the time to deal with us,” Mr. Weisfelner told Bankruptcy Beat.

An Energy Future spokesman couldn’t immediately be reached for comment Thursday morning.

In court papers, Energy Future said later would probably be better, when it comes to addressing the restructuring strategy’s critics. “There is no reason…why these longer-term issues should distract the parties’ and the court’s attention,” lawyers for the company wrote. An Energy Future spokesman has said Delaware is an “appropriate venue” for the company’s balance-sheet restructuring.

White & Case’s Thomas Lauria jumped in Wednesday, seeking to depose Energy Future’s chief financial officer Paul Keglevic the evening before he was slated to testify in the U.S. Bankruptcy Court in Wilmington. Mr. Lauria is representing investors that own some of Texas Competitive Electric’s $2.74 billion in unsecured notes.

Within hours, Texas Competitive Electric’s unsecured bondholders had filed preliminary objections to much of what was slated for discussion at Energy Future’s debut hearing Thursday morning in the U.S. Bankruptcy Court in Wilmington, Del. They also joined the demand for a probe into the company’s management, business and  restructuring talks.

On the supposedly calmer side of Energy Future’s Chapter 11 case, action is limited by the so-called “ring-fencing” that shields Texas transmission business Oncor from the company’s troubles and keeps it out of bankruptcy.

At the time of Energy Future’s 2007 leveraged buyout, worried Texans won concessions for extra regulatory oversight, corporate governance safeguards and other protections. The point was to make sure that if the LBO debt load came crashing down, the lights would stay on. Not much room for trouble.

For a couple hours, anyway. Thomas Moers Mayer of Kramer Levin Naftalis & Frankel weighed in with a challenge to a request to schedule a hearing on the refinancing arrangements that are supposed to set right the balance sheet of Oncor’s indirect majority owner, Energy Future Intermediate Holding.  Representing the trustee and some investors in a $2.1 billion debt issue from the company, Mr. Mayer said they’re not happy with the company’s proposal to deal with some $700 million worth of premiums due on the debt. He said only a small minority of the subsidiary’s creditors support the financing.

Write to Peg Brickley at [email protected].