The Texas-sized Energy Future Holdings Chapter 11 bankruptcy case has a familiar name in a local courtroom.
The utility giant filed its restructuring case in Wilmington. That’s not unusual as the state’s U.S. Bankruptcy Court has built up specialized expertise in such matters.
The filing and its army of legal staff has been good news for hotels, courier services and the entire local legal infrastructure
But why is the name of local financial services company WSFS making headlines in this complicated case and why are its attorneys looking for a way to move the case out of Delaware?
According to Reuters, it turns out that WSFS is trustee for some unsecured debt holders, who believe they would fare better in Texas.
On Thursday, lawyers for WSFS lost one attempt to move the case in a ruling announced Thursday night, Reuters reported.
Delaware gets many Chapter 11 cases from companies that have few if any ties to the state, although companies the size of Energy Future are a rarity.
The lengthy Tribune Co. case was heard in Wilmington, even though the company’s closest newspaper was in Baltimore and a number of smaller restaurant chains with no dining spots in Delaware chose the First State as their venue. One exception was Hawaii’s telephone company, which saw its case move back to the Aloha state.
The involvement of WSFS is a reflection of its expansion into corporate services , such as trusteeships. It can be a good business. There is no financial exposure and fees can be lucrative.
The name that used to frequently appear in some of these matters was Wilmington Trust and the company would routinely issue statements noting that it had no financial exposure in the troubled debt.
So, how did Energy Future Holdings end up in Chapter 11 with a crushing $40 billion debt burden?
Problems developed when the company was hit by the natural gas boom. As the Wall Street Journal noted, its utility rates were pegged on natural gas prices, which were high prior to the financial meltdown of 2008. Energy Future and the company that engineered a buyout were betting that it could produce electricity from coal and nuclear power at cost that was much lower than the tariff for natural gas power.
That did not happen and the next stop was Wilmington.
