What’s the Matter With Texas?

Will Energy Future Holdings Corp.’s massive restructuring play out on the East Coast or in its home state of Texas? According to Texas’s attorney general, he doesn’t really care.

Shortly before a hearing on unhappy creditors’ request to move the former TXU Corp.’s Chapter 11 case to Texas from Wilmington, Del., Texas Attorney General Greg Abbott weighed in. But the two-page filing doesn’t tip the scales of justice one way or the other.

“The Texas Regulatory Authorities take no position on the Motion to Change Venue,” Mr. Abbot’s Abbott’s attorneys wrote in the filing, speaking for the state’s utility, railroad and environmental regulators. “The Texas Regulatory Authorities have the utmost respect for this Honorable Court and the Delaware Bankruptcy Bench, as well as the utmost respect for all of the judges in the Northern District of Texas.”

How civil. It’s a far cry from the impassioned language used by the lawyers for the junior bondholders who are pushing for the transfer. Here’s a quote from their motion to move the case, filed April 29—the same day as Energy Future’s bankruptcy petition:

“The Debtors’ only connection to Delaware is that certain of the Debtors were formed under Delaware law. Such a thin connection (particularly in comparison to the overwhelming connections to the Northern District of Texas), begs the question as to why the Debtors would choose to pursue a course of action as important as these restructuring cases so far away from the location of their headquarters, management, employees, customers, businesses, and assets.”

At the company’s first hearing in bankruptcy court, one of those attorneys, Brown Rudnick’s Edward Weisfelner, hit the message home.

“They shouldn’t be afraid to embrace the word ‘Texas.’ It’s an easy state’s name to pronounce. This is a Texas company, and while I appreciate that they want to avoid the use of the word as often as possible, if you go through all of their presentation every time they talk about their region, their market, substitute the right word, it’s Texas,” Mr. Weisfelner said at a hearing May 1.

Energy Future has dug in its heels, with spokesman Allan Koenig declaring Delaware “an appropriate venue for a Chapter 11 filing such as ours, which is focused on our balance sheet.” He also said that “many of our corporate entities are incorporated in Delaware, and have been for a long time.”

Bankruptcy laws allow corporations to file in the state in which they’re incorporated (which is why so many large Chapter 11s show up in Delaware) as well as where their “principal place of business” or “principal assets” are located. It’s easy for large companies with assets and offices around the country to make an argument that they should be able to file in a given court, which critics brand as forum-shopping. Debtors say the law backs them up when they file in a district away from their headquarters, but creditors argue they’re inconvenienced.

For instance, fellow Texas company Enron ruffled some feathers over a decade ago when it sought Chapter 11 protection in New York. But one Texas attorney says not to look to that case, which was allowed to proceed in the Big Apple, for guidance.

“Energy Future actually has, almost exclusively, all of its business, all of its assets, in Texas,” Houston attorney John Melko, of Gardere Wynne Sewell LLP, told Bankruptcy Beat. “For those people looking at it without an axe to grind, it is thought to be a much stronger venue case than Enron was.”

Mr. Melko, who is representing a small Energy Future creditor in the bankruptcy case but isn’t taking a side on the venue issue, said the Texas bankruptcy judges who’d be in the running for the Energy Future case should it be moved comprise a “high-quality bench.”

“At times, I think that there’s a perception that because the courts in New York and Delaware tend to get more of the Chapter 11s that they’re the only judges who can do it,” he said, adding that the judges in the Northern District of Texas are “equally up the task.”

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ.

Correction: An earlier version of this blog post attributed Mr. Weisfelner’s remarks to a May 2 hearing. They were from a May 1 hearing.