Court’s Decision Causes Uncertainty to Energy Future’s Bankruptcy Plan

by San Antonio Attorney

Energy Future Holdings Corp. was ordered by a United States appeals court to pay $782 million for advance redemption of notes throughout its bankruptcy.

The decision by the 3rd U.S. Circuit Court of Appeals in Philadelphia is a major blow to the Texas-based company.  The ruling was in favor of Energy Future’s first and second note holders.  They claimed that by paying back the debt in advance, the company should give them prepayment premiums, amounting to $431 million and $351 million respectively, which are called make-whole.

A couple of years’ interest could increment tens of millions of dollars further.

In the company bankruptcy plan, it said prohibiting the make-whole claims was part of reorganization.  A court trial has been scheduled to confirm the reorganization plan.

Philip Anker, a lawyer who represented the holders of first-lien notes, was pleased with the court’s decision.

The plan is based on the sale of Energy Future’s primary asset, its share in the Oncor power line, to NextEra Energy Inc.  for an estimated $18.4 billion.

NextEra has the ability to relinquish Energy Future’s requisite that the make-whole imbursement are not allowed, making it possible for Energy Future to fulfill the conditions of the plan.

Energy Future stated in court filings that if it fails in its attempt to reverse the make-whole decision it could face more litigation and decrease the funds allotted for junior creditors.

EFIH, which issued the debt, refinanced $4 billion in first-lien notes from investors after filing for bankruptcy and some of the $2 billion of second-lien notes.  These allowed the company to avoid monthly interest amounting to millions of dollars.

The investors argued the make-whole premium should be used to cover the loss of interest they suffered if the notes were paid back in advance.

The court’s decision turned in part if Energy Future has the option whether or not to redeem the notes.  Judge Thomas Ambro found that though filing for bankruptcy made the notes due right away, the company could have chosen to use bankruptcy to re-establish the original due date of the notes.

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