One of the largest Chapter 11 cases ever is being handled in Delaware, at least for now.
Dallas-based Energy Future Holdings (EFH) late last month announced it entered into an agreement with certain of its key financial stakeholders to reduce its approximately $40 billion of debt, lower its annual cash interest costs, access significant additional capital and create a sustainable capital structure for the future, according to a company release.
Energy Future Holdings Corp. and certain of its subsidiaries filed in Delaware as part of the restructuring plan. Some creditors want the case to move back to its home state of Texas. Bloomberg reported a hearing on transferring the case to the Lone Star State will be held later this month.
In a few cases, the venue of bankruptcy cases has been shifted, one example being Hawaii’s telephone company. Delaware typically handles bankruptcies of mid-sized companies.
Such cases provide an economic boost for Delaware as local attorneys assist the legal team that flies in to handle the cases. The recently opened Westin hotel on the Wilmington Riverfront has a legal center as does the Double Tree in downtown Wilmington, a short distance away from Bankruptcy Court.
The lucrative business of providing a home for legal work was rumored to be a reason for the recent sale of the Double Tree to a company with ties to Chinese investors.
“We are pleased to have the support of our key financial stakeholders for a consensual restructuring,” said John Young, CEO of EFH. “With this restructuring plan, we now have a path to a sustainable capital structure that would put EFH and its family of companies in an even stronger position over the long term to deliver for all of our stakeholders, including our customers, our employees and our business partners.”
Energy Future piled up debt in what amounted to a leveraged buyout of utility companies in Texas. Leveraged buyouts bet that cash flow can pay off debt to the point that stock or other equity can be injected into the company to improve its balance sheet.
Bloomberg reported the company was hit by a decline in natural gas prices in Texas that led to lower electric rates. Texas, Pennsylvania and other states have sharply increased production of natural gas, due to “fracking” technology. That sent electricity prices plunging and the company could not adjust.Among the investors was Warren Buffett, who sold his holdings last year at a big loss, according to Market Watch.
