Energy Future Unsecured Creditors Form Ranks, Hire Morrison & Fo...

Morrison & Foerster won the plum job of representing the official committee of unsecured creditors in the Energy Future Holdings Corp. Chapter 11 case, one of the biggest bankruptcies on record.

Brett Miller led the team that pitched the law firm’s qualifications to the newly named panel, made up of three bond trustees, three trade creditors and the Pension Benefit Guaranty Corp.  Morrison & Foerster has significant bankruptcy experience: it counselled Louis Freeh, the Chapter 11 trustee for MF Global Holdings Ltd., in the largest bankruptcy of 2011.

Federal bankruptcy trustees picked the Energy Future unsecured creditors committee Monday, at a day-long session in a Wilmington, Del. hotel down the street from the U.S. Bankruptcy Court in Delaware.  With $42 billion of debt to shake up—and about $7.7 billion worth of bonds, mostly unsecured—due for a recovery of little or nothing, lawyers looking out for the lower-ranking creditors have their work cut out for them.

In a statement, Energy Future spokesman Allan Koenig said the company is “committed to working as efficiently as possible to restructure our balance sheet” and is looking forward to working with the official committee.

Speculation was rife that there would be not one committee of unsecured creditors, but two. That’s because unsecured creditors of one side of Energy Future’s split business are happy with the company’s restructuring proposal, while the unsecured creditors of the other side have scorned it.

A single committee might have trouble juggling competing agendas.  Unsecured creditors of the Energy Future Intermediate Holding division, the happy side of the company, would want the case to move fast, to lock in the signed deal that gives them 35% of the reorganized company. Unsecured creditors of the Texas Competitive Electric side, the scorn side, need time to investigate, negotiate and attack, if necessary, to improve their recovery.

The bond trustees that have seats on the panel are from the scorn side, lower-ranking creditors of Energy Future’s Texas Competitive Electric division. They include Wilmington Savings Fund Society, trustee for the second-lien notes, a $1.6 billion issue of secured debt; Law Debenture Trust Co. of New York, trustee for $5.5 billion of unsecured bonds, and Bank of New York Mellon, trustee for multiple issues of pollution control bonds and subordinated debt, about $891 million worth, according to court records.

If Energy Future’s Chapter 11 balance sheet revamping plays out unchanged, some of the Texas Competitive second-lien and unsecured bondholders will get pennies on the dollar, and others will be wiped out. Early opposition indicates the company is in for a fight, with the lower-ranking creditors insisting there’s unexplored value in Energy Future.

In committee decisions, bondholder trustee votes don’t count any more than the votes of trade creditors, a group that is generally devoted to the idea of seeing their distressed customer restored to financial health.  Court records say Holt Cat of San Antonio, one of the trade vendors, is owed $11.4 million.  ADA Carbon Solutions, another committee member, is owed $10.5 million, while the third supplier on the committee, HCL America Inc., is waiting to collect $8 million.

It’s not clear what side of Energy Future’s business owes the money to the trade debtors, but the happy side of the company is a holding company whose business is to own an 80% stake in Oncor, the Texas transmission business that is not involved in the bankruptcy. Texas Competitive Electric owns the energy-generating and selling entities, which are not shielded from the Chapter 11 proceeding.

The Pension Benefit Guaranty Corp., the seventh member of the committee, is a veteran of such panels, intent on making sure there’s a cushion should any retirees fall into its quasi-governmental safety net. In announcing its bankruptcy petition, Energy Future said it “fully expects” to continue “full protection under U.S. federal law for qualified retirement plans—both defined-benefit pension and 401(k) savings plans” and “qualified retirement plan payments and medical benefits for retirees.”