Rather, in a Form 8-K filed this evening with the Securities and Exchange Commission, the company said it would skip some $119.3 million of April 1 coupon payments with respect to certain of its first lien notes, second lien notes, and pollution control revenue bonds, at its Texas Competitive Electric Holdings (TCEH) subsidiary, and instead “use the permitted grace periods” the debt indentures provide.
The first and second lien debt provides for a 30-day grace period, according to the filing, and the pollution control bonds provide for a 60-day grace period.
The coupons being skipped are $50.3 million due on $1.75 billion of 11.5% first lien notes due 2020; $58.9 million due on two series of $1.57 billion of 15% second lien notes due 2021; and $10.1 million due on the pollution control revenue bonds.
Separately, the company also said in a different SEC filing this evening that it would not be filing its Form 10-K, or annual report, as required today. As was widely expected, however, the company said the Form 10-K would include a statement from the company’s auditors substantially doubting Energy Future’s ability to continue as a going concern due to the company’s inability to repay debt obligations this year, most notably $3.85 billion of TCEH first lien term loans due in October. According to the filing, the auditor’s warning would trip a covenant in the TCEH credit agreement, and ultimately result in a default following a 30-day cure period.
“In consideration of the additional time required to evaluate the effects of these events on the financial statements and disclosures included in the companies’ annual reports on Form 10-K, such Form 10-Ks cannot be timely filed without unreasonable effort and expense, “ the company said in the filing.
Meanwhile, the company confirmed in the 8-K that, as had been stated in numerous press reports over the past two weeks, it has been engaged with its creditors and equity holders “in discussions regarding the terms of and conditions to changes in the companies’ capital structure and restructuring alternatives.” The company said that while “these discussions have been, and continue to be, constructive,” the parties have not yet reached an agreement.
The company also confirmed that it had executed confidentiality agreements with “certain unaffiliated holders of claims against the companies.”
The company did not provide any details of the substance of the negotiations, or the specific parties involved.
While, as noted, the company said it would “use” the grace periods provided by the various debt indentures affected by the non-payment of the coupons, the company said this did not mean that a Chapter 11 filing would necessarily be delayed by the entire 30-day grace period.
“TCEH’s decision of how much of the applicable grace periods to use before pursuing any restructuring alternative (including the filing for protection under Chapter 11 of the US Bankruptcy Code) will be evaluated based on various factors, including the status of the discussions [with creditors],” the company said.
But in the absence of the company curing the default, it is difficult to see how it could avoid a Chapter 11 filing beyond that grace period without the consent of its creditors. Defaults under the respective indentures would trigger various cross defaults and acceleration of an additional $23.8 billion of secured and $4.3 billion of unsecured debt.
Indeed, in connection with a potential Chapter 11 filing, the company said it has been “negotiating binding commitments with certain financial institutions for debtor-in-possession financings.” The filing said the proposed DIP “would provide for senior secured, super-priority revolving credit facilities and term loans totaling up to $4.475 billion at TCEH and $5.2 billion at Energy Future Intermediate Holdings, the intermediate holding company that serves as the parent for the company’s regulated utility, Oncor.
While negotiations continue, the company said it expects to operate in the normal course of business, noting that as of March 25, cash and cash equivalents totaled $763 million, consisting of $197 million at holding company EFH Corp., $137 million at EFIH, and $429 million at TCEH. – Alan Zimmerman