“Baker Botts is delighted to have the opportunity to work with Hunt in forming an equity consortium and negotiating these transactions with EFH, which should expedite EFH’s exit from bankruptcy and ensure that Oncor has a strong Texas-based management team and is positioned to continue to meet the needs of its customers and the communities it serves,” said Geoff Newton, a Corporate partner with Baker Botts.
The transactions will be implemented pursuant to an agreed Chapter 11 plan of reorganization filed yesterday by EFH. Under the agreed plan, the first lien creditors of Texas Competitive Electric Holdings Company (TCEH), the merchant energy subsidiary of EFH, will receive TCEH’s assets in a tax-free transaction in satisfaction of approximately $25 billion in claims held by them, and the holders of all allowed claims (approximately $10 billion) against EFH and its subsidiary that is the indirect owner of any 80% interest in Oncor, will be paid in cash in full. The filing of the agreed plan is supported by, among others, the ad hoc group of TCEH unsecured creditors, the steering committee of the ad hoc group of holders of TCEH first lien loans and notes, the TCEH second lien indenture trustee, and the official committee of TCEH’s unsecured creditors, and ends over a year of litigation in EFH’s chapter 11 case.
The investor group includes Hunt, new investors, and current creditors of EFH and its subsidiaries, who are investing more than $7 billion of additional equity as part of the transaction. After all necessary regulatory, bankruptcy court and Internal Revenue Service (IRS) approvals are obtained, and as part of the transactions, the group will acquire EFH and its approximate 80% ownership stake in Oncor. EFH will be restructured into a Real Estate Investment Trust (REIT), which will continue to own the transmission and distribution assets currently owned by Oncor. The newly restructured REIT will be owned by the consortium of investors and managed by Hunt.
In addition, an operating company will be created and will keep the Oncor name, with the headquarters remaining at its existing office in Dallas, Texas. It will be responsible for the day-to-day operation, maintenance, and construction of Oncor’s existing system. Oncor’s existing management team, its employees, and its operating assets will transfer to this operating company, which will be owned and controlled by the Hunt family through the same entity that owns Sharyland Utilities (the Hunt family’s other regulated electric utility in Texas). The newly restructured REIT will lease the transmission and distribution assets to Oncor, who will operate the system on the REIT’s behalf.
This proposal will require approval from the bankruptcy court, which is expected in the fall. The change in control of Oncor also requires regulatory approval from the PUCT. The application for regulatory approval is expected to be filed with the PUCT in September.
Hunt Consolidated, Inc. has been principally advised by Baker Botts L.L.P. partners Geoff Newton, Luckey McDowell, Bill Howell, Preston Bernhisel, Steve Marcus, Eric Winwood and Alison Boren along with associates Tara Lancaster, Bryan Henderson, Krysta Edwards and Meggie Gilstrap.
Sutherland Asbill & Brennan LLP and Milbank, Tweed, Hadley & McCloy LLP are providing advice to Hunt specifically related to regulatory and debt financing matters.
Morgan Stanley has been the lead financial advisor to Hunt and is the sole provider of a $5.5 billion acquisition debt financing commitment to the consortium.
The ad hoc group of TCEH unsecured noteholders, who are members of the consortium representing equity commitments of $6 billion, has played an active role throughout the bankruptcy case has been advised throughout the bankruptcy proceedings and in connection with consortium proposal by White & Case LLP on legal matters and Houlihan Lokey on financial matters.
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