By Pierre Paulden
Oct. 9 (Bloomberg) -- Energy Future Holdings Corp.bondholders are forming a group to block the electricity provider’s offer to swap $6 billion of debt for $4 billion of new secured notes with less protection for investors, according to two people familiar with the matter.
Lenders owning as much as 50 percent of Energy Future’s bonds maturing in 2017 oppose the terms of the exchange, said an attorney familiar with the matter who declined to be identified because the discussions are private.
Dallas-based Energy Future, formerly TXU Corp., needs to reduce debt after KKR & Co. and TPG Inc. paid $43 billion for the company using a combination of high-yield, high-risk loans and bonds in October 2007. That was before gas prices fell, credit markets seized up and equity markets tumbled.
“Bondholders may want to prevent the stripping of covenants from the bonds,” said Chris Chaice, an analyst with debt research firm Covenant Review LLC in New York. The covenants give bondholders a say over proceeds from asset sales and limit new debt, Chaice said. Removing them “creates more flexibility for the owners. For every dollar that goes to the equity owners, that’s one less for the bondholders,” he said.
Energy Future has $44.5 billion of loans and bonds, including $22.5 billion coming due in 2014, according to data compiled by Bloomberg.
The company “is suffering under the weight of an untenable debt load created by an ill-timed leveraged buyout at the top of the market,” Carl Blake, a Washington-based analyst at Gimme Credit LLC, wrote in an Oct. 6 report.
Bondholders’ Influence
Energy Future plans to issue as much as $4 billion of 9.75 percent secured notes maturing in 2019 in exchange for $6 billion of outstanding notes, the company said in an Oct. 5 filing. It’s asking debt holders with $750 million of 6.55 percent notes maturing in 2034 to swap holdings for 46.5 cents on the dollar of new secured notes if they tender by Oct. 19, according to the filing.
The company’s $1.985 billion of 10.875 percent bonds due in 2017 fell 1.25 cent today to 72 cents on the dollar as of 11:50 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its $2.65 billion of so-called toggle bonds due in November 2017 fell 1 cent to 66.5 cents on the dollar, and have fallen 9 cents since August, Trace data show.
The proposed debt exchange “will give bondholders some security,” Energy Future spokeswoman Lisa Singleton said in a telephone interview on Oct. 7. She declined yesterday to comment on potential opposition to the plan.
Franklin Advisers of San Mateo, California, Berkshire Hathaway Life Insurance Co., a unit of Warren Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc., and Capital Research & Management Co. are among the largest bondholders based on reported filings, according to data compiled by Bloomberg.
The New York Post reported today that Franklin opposed the plan. Franklin spokeswoman Lisa Gallegos declined to comment. Buffett didn’t reply to a request for comment left with his assistant, Carrie Kizer. Capital Research spokeswoman Maura Griffin in New York declined to comment.
Related Links
Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Shareinvestor.net.nz
Share Investor's Daily Forex Updates
Recommended Amazon Reading
Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham
Buy new: $47.25 / Used from: $41.94
Usually ships in 24 hours
No comments:
Post a Comment