Finalist: M&A Deal of the Year
The extraordinarily complex, expensive and seemingly never-ending journey of Energy Future Holdings through federal bankruptcy is finally nearing an end.
Widely described as one of the five most complicated and costly corporate bankruptcies in U.S. history, the EFH restructuring has also produced some of the most innovative and sophisticated legal work by a group of corporate in-house and outside counsel that Texas has ever seen.
The EFH bankruptcy has witnessed the elimination of more than $20 billion in debt, four corporate M&A divestitures valued at $18 billion each, heated battles with state regulators that caused two of those deals to collapse, and the $20 billion spin-off of two subsidiaries.
The four-year-long bankruptcy turned the corner during the past 16 months when lawyers working for EFH and one of its subsidiaries, Oncor Electric Delivery, negotiated a series of agreements that completely changed the landscape of the Texas energy world.
In August, EFH reached a definitive $18 billion agreement to sell to Sempra Energy its 80 percent ownership stake in Oncor, which was technically not part of the bankruptcy. Regulatory lawyers for EFH and Oncor are reportedly on the verge of getting final approval for the transaction from the Texas Public Utilities Commission. In late 2016, EFH spun-off two of its subsidiaries – TXU Energy and Luminant – into a separate company, which is now called Vistra Energy.
“As a business lawyer, this bankruptcy has had everything – multiple huge multibillion-dollar M&A deals, extremely complicated and contentious regulatory battles and some very high-stakes litigation,” says EFH General Counsel Andy Wright. “It has been fascinating, frustrating and fun – sometimes all at the same time.
“But it also has included some of the most extraordinary and complex work by lawyers ever in a corporate bankruptcy,” he says. “Fingers crossed, we are close to the end.”
While any one of the multibillion-dollar transactions described above would qualify lawyers for EFH and Oncor to be nominated for the 2017 Outstanding Corporate Counsel M&A Deal of the Year Award, the combination of the deals easily make the legal advisers who worked on them finalist for this year’s honor.
The Association of Corporate Counsel’s DFW Chapter and The Texas Lawbook are recognizing EFH General Counsel Andy Wright, former EFH GC Stacey Doré and Oncor GC Allen Nye as joint finalists for the M&A Deal of the Year Award. The award also honors the outside counsel who worked with them, including Kirkland & Ellis partner Andrew Calder, Enoch Kever partner Andrew Kever, former Jones Day partner Patricia Villareal and Vinson & Elkins partner Matt Henry.
“This bankruptcy was extremely complex for several reasons, including the extraordinary amount of debt and the competing interests of several different major creditors,” says Doré, who quarterbacked EFH through most of the bankruptcy until she left last fall to join Hunt Utilities as its GC.
EFH was created in 2007 when private equity firms KKR, TPG and others acquired TXU Energy for $45 billion in the largest leveraged buyout in U.S. history.
“It was a huge bet on the price of natural gas and that it would go up,” Wright says. “But the recession hit in 2008 and the demand for natural gas declined dramatically. At the same time, the shale revolution through fracking was realized and natural gas became cheaper.
“The debt load was simply too high to maintain,” he says.
Doré hired Kirkland as EFH’s lead bankruptcy adviser. The Dallas company filed for protection under Chapter 11 in April 2014. The plan was simple: give its TXU Energy and Luminant Energy subsidiaries to its lenders and sell its Oncor unit to pay off creditors. The proposal called for the deals to be completed within 11 months.
Within weeks, the plan fell apart. Some of the key creditors balked. The bankruptcy was tossed into disarray and spent more than a year mired in a stalemate because of bickering between the parties. Three attempted efforts to sell EFH’s 80 percent ownership of Oncor for $18 billion failed. All the while, the fees paid to legal and financial advisers in the bankruptcy keep piling up – some times to more than $600,000 a day and now totals more than $500 million.
“Bankruptcy is such a convoluted process that can take unexpected twists and turns,” says Calder, who was the lead lawyer in the four Oncor transactions. “Unfortunately, this one took several such turns.”
EFH tried to sell its stake in Oncor to the Hunts and then to NextEra, but both deals fell victim to the TPUC, which was concerned that future financial problems for the parent companies might put Oncor and its customers at risk.
In July 2017, EFH reached a deal to sell its Oncor interests to Berkshire Hathaway. But a month later, Sempra made a better offer as part of the bankruptcy proceedings.
The Sempra deal has tentative approval from the federal bankruptcy judge and appears to be headed for smooth sailing at the TPUC.
There have been so many moving parts to this entire situation,” says Oncor GC Allen Nye. “It has been like playing four-dimensional chess.”