It has been seven years since a massive leveraged buyout burdened Energy Future Holdings with debt. In that time, the U.S. natural gas boom slashed prices for electricity, further crippling the energy company. The Texas energy giant now owes nearly $50 billion to hedge funds and investment firms, and with only $36 billion in assets, they were forced to file for bankruptcy. This is the 10th largest Chapter 11 filing ever.
Price Drop Led to Bankruptcy
Energy Future struggled in recent years due in large part to natural gas prices falling dramatically in 2009. New drilling technology opened up a glut of natural gas in the United States, eroding into profit margins for owners of coal-fired generators, like Energy Future.
While the bankruptcy filing may not affect retail customers, it is sure to put pressure on regulators. Texas Energy Future’s bankruptcy rivals that of Pacific Gas & Electric Co and Enron.
Energy Future’s Chapter 11 Bankruptcy
Energy Future enters Chapter 11 bankruptcy with several deals in place to cut its Texas Competitive Electric Holdings unit from the parent company. This can be done without triggering a tax liability, thus freeing up more capital to pay creditors. They have agreements already in place to restructure nearly $40 billion of the debt. The company also said they have reached an agreement to borrow $11.8 billion to finance operations while Chapter 11 bankruptcy is underway.
When the bankruptcy is completed, Texas Competitive Electric Holdings unit would be under the ownership of first-lien lenders, such as Apollo investment firm and Oaktree Capital Management. These deals would cut $2.5 billion from Energy Future’s debt.
Chapter 11 – The Last Resort
Chapter 11 bankruptcy is often the last resort for many businesses who wish to get out from underneath crushing debt. It allows businesses to restructure and continue in operation while handling and restructuring the massive debts they have accumulated. It is also the only bankruptcy option for businesses that owe too much money to be considered for Chapter 13 bankruptcy.
If your business is considering bankruptcy, it is important to understand all of your options. Each bankruptcy case has its own unique set of circumstances and an experienced Texas bankruptcy lawyer can help you make sense of it all. If you would like for us to examine your situation, contact our Dripping Springs Texas Law Firm today to speak with an attorney. Call (512) 615-3569 to find out how Attorney R. Brian Daniel has helped many other individuals and businesses with legal questions just like yours!