A Delaware Chapter 11 bankruptcy case involving a Texas utility giant could end up costing a half a billion dollars.
The Dallas Morning News, citing its Texas Lawbook website, says the estimate for Energy Future Holdings is based on $230 million in billings since the case was filed in spring of 2014.
Energy Future holdings, piled up more than $40 billion in debt, after a leveraged buyout that was based on a bet that coal and nuclear-fired electricity would fetch higher kilowatt hour charges as natural gas costs rose.
Instead, natural gas prices have plummeted and the debt from the buyout using financial giants like Goldman Sachs had become burdensome.
That left Energy Future with no choice but to undertake a complex bankruptcy proceeding in an effort to restructure its finances. The case is made more complex by the fact that holding company operates heavily regulated utilities as well as businesses that sell electricity on the open market.
Legal charges are skyrocketing because of the twists and turns related to selling or spinning off utilities and other holdings and a lack of agreement among its many creditors.
No Delaware law firm is on the list of the largest practices handling the case. However, in Chapter 11 cases, Delaware lawyers are often hired.
Chicago –based Kirkwood and Ellis is the largest firm involved in the case, with billings and expenses of nearly $86 million as of June.
The case is likely to continue to fan controversy in legal and corporate on the costs of legal and financial advisors who handle such cases.
The spring of 2015 is now seen as the earliest possible time frame for the case to be resolved.
With the improving economy, the pace of Chapter 11 cases filed in Delaware has slowdown, although the case could quicken if the economy softens or companies take on too much debt.
U.S. Bankruptcy Court in Wilmington typically sees smaller companies file cases. Categories have included newspaper companies (Gatehouse, Lee, Tribune Co.); restaurant chains (Old Country Buffet); and retailers (Radio Shack, Wet Seal).
Bankruptcies involving the auto industry and the massive Lehman Brothers filing that brought about a near collapse of the nation’s financial system, ended up in other venues.
The state missed a potential legal bonanza when gaming giant Harrah’s was able to convince a Delaware Bankruptcy Court judge that the case should be moved to Chicago. Some creditors wanted to see the case conducted in Delaware.
Creditors have the right to contest legal fees. Under bankruptcy law, legal and financial advisors are paid before creditors in settlements.
