NextEra Energy, acting in concert with an ad hoc group of second-lien bondholders of Energy Future Intermediate Holdings (EFIH), has increased its offer to acquire EFIH and its parent, Energy Future Holdings, out of Chapter 11 in a transaction that NextEra said would provide about “$180 million of additional value available for consensual settlements throughout the debtors’ capital structure.”
The revised transaction from NextEra, detailed in a letter and term sheet dated July 16 that was e-mailed to the company and that was attached as an exhibit to a bankruptcy court filing, involves a two-step process that would be implemented following the tax-free spin-off of Energy Future’s unit Texas Competitive Electric Holdings, the intermediate holding company for Energy Future’s unregulated power producing and retailing operations, that is already contemplated under the company’s proposed pre-arranged reorganization plan.
As reported, EFIH is the intermediate holding company of Energy Future that controls 80% of Oncor, a regulated utility.
In the first step, NextEra would either purchase 41% of the equity in the reorganized company pursuant to a reorganization plan for $1.625 billion, or alternatively, would invest $1.625 billion in a new second-lien DIP. This investment (including certain PIK interest under the contemplated DIP facility and a $75 million PIK funding fee) would then be converted into 42% of the reorganized company’s equity pursuant to a reorganization plan. The investment “would be part of a larger mandatorily convertible second-lien debtor-in-possession facility that would involve the rollover of a portion of EFIH’s prepetition second-lien notes into notes under such facility.” Interest under the second-lien DIP would be at 6% per annum (payable partially in-kind and partially in cash to NextEra, and payable in cash with respect to the portion provided by current second-lien noteholders).
In the second step of the transaction, NextEra would acquire the remainder of reorganized Energy Future through a merger in exchange for NextEra stock in an amount sufficient to, along with other funding, make all of the required distributions to EFIH and Energy Future creditors pursuant to the proposed reorganization plan, such that the total consideration paid by NextEra, as well as the distributions received by received by EFIH and Energy Future creditors, would consist of 50% cash and 50% NextEra equity.
The contemplated reorganization plan would see EFIH’s current second-lien noteholders, owed roughly $2.1 billion in principal, receive all principal, accrued and unpaid interest, and the entire disputed make-whole payment claimed by second-lien lenders (roughly $700 million), less $25 million, with payment comprised of 50% cash and 50% NextEra stock.
Holders of the EFIH unsecured 11.25% toggle notes, owed about $1.4 billion, would receive all principal due plus, if required by the bankruptcy court (or at NextEra’s discretion), any accrued and unpaid interest and any make-whole payments. Holders of parent company unsecured LBO notes due 2017, with roughly $60 million outstanding, would also receive all principal due plus, if required by the bankruptcy court (or at NextEra’s discretion), any accrued and unpaid interest and make-whole payments. In both cases, payment would be comprised of 50% cash and 50% NextEra stock. Fidelity is known to be a primary holder of this debt.
Energy Future’s legacy noteholders, meanwhile, would receive NextEra stock in an amount equal to 0.4% of Energy Future’s reorganized equity, plus any residual cash at Energy Future Holdings, the parent company. NextEra said that would amount to $20 million more in cash than under the company’s currently proposed pre-arranged reorganization plan.
Lastly, Energy Future current equity sponsors would receive NextEra stock in an amount equal to 0.4% of Energy Future’s reorganized equity.
In the June 16 letter, NextEra said its deal “implies a significantly higher enterprise valuation for Oncor than the implied enterprise valuation under the [company’s pre-arranged reorganization plan], with an approximate $500 million increase over our prior proposal.
Meanwhile, NextEra’s increased offer is just the latest in a flurry of activity ahead of a key status hearing in the case set for tomorrow morning in Wilmington, Del.
The status hearing follows the company’s notice to the bankruptcy court on July 8 that it would delay consideration of its proposed second-lien financing for EFIH that was to have been provided by holders of EFIH toggle notes along with Fidelity, which was a key piece of Energy Future’s proposed pre-arranged global restructuring plan, in order “to provide the time needed to address … postpetition developments potentially beneficial to” the bankrupt company.
The company did not specify what those “potentially beneficial” developments were, but said it would provide a comprehensive status report at the start of tomorrow’s hearing.
Then on Tuesday, Debtwire reported – citing unnamed sources – that first-lien creditors at TCEH planned to terminate their support of the company’s global reorganization settlement due to several reasons, including the higher valuations at EFIH contemplated by NextEra’s bid for the company, the company’s delay in gaining approval of the second-lien DIP, and the recent disclosure of a $773 million intercompany debt owed by the parent company to TCEH. – Alan Zimmerman