Energy Future Holdings Corporation
EFIH Unsecured Recoveries Take Hit Under Berkshire Deal; Debtors Confirm Termination of NextEra Transaction
Fri 07/07/2017 15:52 PM
Relevant Documents:
8-K (including merger agreement, form POR)
Press Release
After this morning’s announcement of Berkshire Hathaway Energy’s acquisition of Oncor, BHE released an 8-K providing greater detail about the transaction including with respect to the three contemplated mergers of Energy Future Holdings Corp., Energy Future Intermediate Holding Co. and Oncor Electric Delivery Holdings Co. The merger agreement includes a form plan of reorganization, contemplated to be filed with the Delaware bankruptcy court by July 11.
Section 5.1(w) of the merger agreement makes clear that the NextEra Energy merger agreement has been terminated by EFH. Under the circumstance of the company terminating the deal because approval from the Public Utility Commission of Texas was not received, it appears that the debtors would be on the hook for a $275 million termination fee to NextEra. The company has previously stated that it would “only terminate in such a situation if they had an alternative proposal to pursue.”
Under the current transaction, BHE and certain subsidiaries would effectuate mergers with EFH, EFIH and Oncor Holdings resulting in BHE indirectly owning 80.03% of the equity interests of Oncor Electric Delivery Company LLC. The remaining Oncor equity interests would continue to be owned by Texas Transmission Investment LLC (19.75%) and Oncor management (0.22%) - though BHE has the support of certain parties to seek approval for the acquisition of 100% of Oncor. The merger agreement, including through sections 6.18 and 6.19, also appears to allow for and contemplate BHE’s acquisition of these minority Oncor equity interests.
According to the 8-K, EFH is not prohibited from soliciting proposals from third parties prior to bankruptcy court approval of its entry into the merger agreement with BHE.
According to the release, the all-cash consideration for reorganized EFH is $9 billion, implying an equity value of about $11.25 billion for 100% of Oncor. While Berkshire has not disclosed the implied total enterprise value of the deal, the $9 billion purchase price for EFIH’s 80.03% indirect interest in Oncor represents approximately $700 million less than creditors would have received under the NextEra transaction, based on illustrative creditor recoveries disclosed by the debtors in connection with the EFIH secured claim settlements, updated for March 31 Oncor net debt. The chart below shows implied recoveries for the EFIH unsecured notes and EFH LBO notes under each of the NextEra and Berkshire deals and illustrates an estimated 40-point drop in unsecured recoveries under the BHE deal. The EFIH PIKs have already traded down about 10 points since the deal was announced early this morning, with quotes in the 30 context according to TRACE data. Today’s levels are down from about 40 Thursday, which saw the unsecureds jump about 5 points from the mid-30s on press reports of a potential Berkshire deal.
The cash consideration is expected to be funded by BHE shareholders and by issuing BHE debt, according to the 8-K. As previously reported, BHE’s regulatory commitments include that Oncor would not take on any additional debt as a result of the transaction without prior approval from the Public Utility Commission of Texas. BHE says that the transaction is expected to be completed in the fourth quarter of 2017. According to the 8-K, the closing must be consummated within 240 days (March 4, 2018), subject to a 90-day extension under certain circumstances, and the bankruptcy court, subject to certain exceptions, must have entered a plan confirmation order by Dec. 15.
The 8-K also provides that BHE and the EFH debtors have agreed to cooperate to obtain all necessary approvals and consents, including targeting today for the filing of a motion seeking approval of the merger agreement (including a $270 million termination fee) with the bankruptcy court. In addition, the parties would seek to file a plan of reorganization and accompanying disclosure statement by July 11.
Further, BHE has entered into a letter agreement with Oncor Holdings and Oncor to cooperate with respect to the transactions contemplated by the merger agreement, including with respect to PUCT approval.
Legal advisors to the parties include Jones Day as counsel to Oncor and Gibson Dunn as counsel to the BHE purchaser.
The form plan included in the 8-K today largely tracks the construct of the prior plan sponsored by NextEra. Under the proposed plan, the EFIH DIP would be fully paid in cash, and EFIH first lien and second lien note claims would be unimpaired and paid in cash in accordance with the EFIH secured claims settlement. EFH LBO note guaranty claims and EFIH general unsecured claims - including the PIK notes - would recover their pro rata share (calculated on a combined basis) of the “EFIH Unsecured Creditor Recovery Pool,” essentially remaining cash at EFIH after the transaction. A form or draft disclosure statement is not included in the 8-K, and the documents do not provide estimated percentage recoveries.
The next hearing in the bankruptcy court is scheduled for Wednesday, July 12, at 10 a.m. EDT.
8-K (including merger agreement, form POR)
Press Release
After this morning’s announcement of Berkshire Hathaway Energy’s acquisition of Oncor, BHE released an 8-K providing greater detail about the transaction including with respect to the three contemplated mergers of Energy Future Holdings Corp., Energy Future Intermediate Holding Co. and Oncor Electric Delivery Holdings Co. The merger agreement includes a form plan of reorganization, contemplated to be filed with the Delaware bankruptcy court by July 11.
Section 5.1(w) of the merger agreement makes clear that the NextEra Energy merger agreement has been terminated by EFH. Under the circumstance of the company terminating the deal because approval from the Public Utility Commission of Texas was not received, it appears that the debtors would be on the hook for a $275 million termination fee to NextEra. The company has previously stated that it would “only terminate in such a situation if they had an alternative proposal to pursue.”
Under the current transaction, BHE and certain subsidiaries would effectuate mergers with EFH, EFIH and Oncor Holdings resulting in BHE indirectly owning 80.03% of the equity interests of Oncor Electric Delivery Company LLC. The remaining Oncor equity interests would continue to be owned by Texas Transmission Investment LLC (19.75%) and Oncor management (0.22%) - though BHE has the support of certain parties to seek approval for the acquisition of 100% of Oncor. The merger agreement, including through sections 6.18 and 6.19, also appears to allow for and contemplate BHE’s acquisition of these minority Oncor equity interests.
According to the 8-K, EFH is not prohibited from soliciting proposals from third parties prior to bankruptcy court approval of its entry into the merger agreement with BHE.
According to the release, the all-cash consideration for reorganized EFH is $9 billion, implying an equity value of about $11.25 billion for 100% of Oncor. While Berkshire has not disclosed the implied total enterprise value of the deal, the $9 billion purchase price for EFIH’s 80.03% indirect interest in Oncor represents approximately $700 million less than creditors would have received under the NextEra transaction, based on illustrative creditor recoveries disclosed by the debtors in connection with the EFIH secured claim settlements, updated for March 31 Oncor net debt. The chart below shows implied recoveries for the EFIH unsecured notes and EFH LBO notes under each of the NextEra and Berkshire deals and illustrates an estimated 40-point drop in unsecured recoveries under the BHE deal. The EFIH PIKs have already traded down about 10 points since the deal was announced early this morning, with quotes in the 30 context according to TRACE data. Today’s levels are down from about 40 Thursday, which saw the unsecureds jump about 5 points from the mid-30s on press reports of a potential Berkshire deal.
The cash consideration is expected to be funded by BHE shareholders and by issuing BHE debt, according to the 8-K. As previously reported, BHE’s regulatory commitments include that Oncor would not take on any additional debt as a result of the transaction without prior approval from the Public Utility Commission of Texas. BHE says that the transaction is expected to be completed in the fourth quarter of 2017. According to the 8-K, the closing must be consummated within 240 days (March 4, 2018), subject to a 90-day extension under certain circumstances, and the bankruptcy court, subject to certain exceptions, must have entered a plan confirmation order by Dec. 15.
The 8-K also provides that BHE and the EFH debtors have agreed to cooperate to obtain all necessary approvals and consents, including targeting today for the filing of a motion seeking approval of the merger agreement (including a $270 million termination fee) with the bankruptcy court. In addition, the parties would seek to file a plan of reorganization and accompanying disclosure statement by July 11.
Further, BHE has entered into a letter agreement with Oncor Holdings and Oncor to cooperate with respect to the transactions contemplated by the merger agreement, including with respect to PUCT approval.
Legal advisors to the parties include Jones Day as counsel to Oncor and Gibson Dunn as counsel to the BHE purchaser.
The form plan included in the 8-K today largely tracks the construct of the prior plan sponsored by NextEra. Under the proposed plan, the EFIH DIP would be fully paid in cash, and EFIH first lien and second lien note claims would be unimpaired and paid in cash in accordance with the EFIH secured claims settlement. EFH LBO note guaranty claims and EFIH general unsecured claims - including the PIK notes - would recover their pro rata share (calculated on a combined basis) of the “EFIH Unsecured Creditor Recovery Pool,” essentially remaining cash at EFIH after the transaction. A form or draft disclosure statement is not included in the 8-K, and the documents do not provide estimated percentage recoveries.
The next hearing in the bankruptcy court is scheduled for Wednesday, July 12, at 10 a.m. EDT.
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