Texas power company Energy Future proposes prepackaged bankruptcy

By Nick Brown and Michael Erman

Mon Apr 15, 2013 8:05pm EDT

(Reuters) – Texas power company Energy Future Holdings, formerly known as TXU Corp, has proposed a prepackaged bankruptcy that would restructure $ 32 billion of debt, but no deal has been reached, the company said on Monday.

Energy Future TXEFHE.UL, taken private in 2007 in the largest-ever leveraged buyout, said in a U.S. Securities & Exchange Commission filing that it has proposed a restructuring deal to creditors that would exchange secured creditors’ claims for a combination of equity and new debt.

“The principals of the companies and the creditors are currently not engaged in ongoing negotiations,” Energy Future said.

It noted, however, that creditors have conveyed they would consider the restructuring if it increased distributions and better compensated them for the risk of taking on equity.

Energy Future is trying to restructure more than $ 30 billion in debt it was saddled with after the buyout by a consortium including KKR & Co (KKR.N), TPG Capital Management TPG.UL and Goldman Sachs Group Inc’s (GS.N) private equity arm. The $ 45 billion TXU buyout, which loaded the company with debt, is viewed as one of the most spectacular failures of the last decade’s buyout boom.

The company has a large and complex capital structure, and industry experts have speculated about which entities may be headed for bankruptcy and which could be spared.

Most of Energy Future’s debt sits on the unregulated side, at Texas Competitive Electric Holdings (TCEH)TXEFHC.UL, the holding company for its unregulated retail business, TXU Energy, and its unregulated merchant power unit, Luminant.

The company has ringfenced Oncor TXEFHO.UL, its regulated power delivery business, in hopes of keeping it solvent, and the restructuring proposal revealed on Monday would not have included that unit or the holding company that owns its equity.

The proposed restructuring would have allowed TCEH creditors to trade in their senior claims for a combination of equity at the Energy Future parent and a share of $ 5 billion in cash or new TCEH debt. Under the company’s proposed restructuring, TCEH would pick up $ 3 billion of new loans and another $ 5 billion of long-term debt.

The company’s private equity backers proposed a restructuring in which the buyout firms and other equity holders would retain 15 percent of the equity in the reorganized company and creditors would end up with the remaining 85 percent, according to the filing.

The private equity firms also suggested that they could provide additional capital to Energy Future in exchange for a larger share of the company, the filing said.

But according to Monday’s SEC filing, creditors told Energy Future that they believe the company needs to address debt structure issues at its parent as well as at the holding company for ringfenced Oncor.

They said they would not accept the proposed prepackaged bankruptcy unless, among other things, it achieved “a sustainable debt capital structure” for the parent company and Oncor’s holding company “without reliance on TCEH’s cash flows.”

Some of Energy Future’s largest creditors include Apollo Global Management, Oaktree Capital Management, Centerbridge Partners, Fidelity Investments and Franklin Resources, according to a source close to the matter.

Energy Future is not necessarily up against the clock. Although it has about $ 270 million in interest payments due on May 1, it can easily afford to make them. It has around $ 2.7 billion in liquidity – plenty for it to survive on, at least until a $ 3.85 billion bank loan matures in October 2014, a U.S. regulatory filing from January shows.

The TXU takeover was built on hopes that natural gas prices would stay high. Instead, they dropped sharply and are still down 45 percent from February 2007 levels.

Energy Future Holdings is the largest power generator in Texas. Its merchant power unit, Luminant, owns more than 15,000 megawatts of nuclear, coal and gas-fired power plants.

KKR and TPG declined to comment on the matter. Goldman Sachs could not be immediately reached for comment.

(Reporting by Nick Brown and Michael Erman in New York; Editing by Lisa Shumaker and Phil Berlowitz)

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Reuters: Business News

Texas power company Energy Future proposes prepackaged bankruptcy

German Economist Proposes "One Time" Cyprus-Like 15% Wealth Tax on Italians; Italy Proposes Easing Stability Pact; Is Italy the Next Cyprus?

Once trust is lost it is very slow to recover. For now, much of Europe is acting as if it believes Cyprus is a “one time” thing? But isn’t that what we heard about Greece? Who is next? Italy?

In an article on Handelsblatt the chief economist of Commerzbank says: Italy should bring a unique wealth tax.

It is a myth to talk of crisis-strapped states. Even the German Institute for Economic Research (DIW) and the chief economist of Commerzbank, Joerg Kraemer says the numbers suggest a different view.

Kramer relies on surveys of the European Central Bank. Net financial assets of the Italians are 173 percent of gross domestic product (GDP). This is significantly more than the net financial assets of the Germans, which corresponds to 124 percent of GDP, said Kramer for Handelsblatt Online.

“So it would make sense, in Italy for a one-time property tax levy,” suggested the Bank economist. “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product.”

Reader Bernd suggests Kraemer means a net tax on all assets not just financial ones, but either way the idea is preposterous. Banks always want bailouts to fall on the backs of private citizens not on banks.

Italy’s Companies Face Slow ‘Death’ as Credit Crunch Deepens

While pondering the above confiscation threat, Ambrose Evans-Pritchard the Telegraph reports Italy’s Companies Face Slow ‘Death’ as Credit Crunch Deepens.

Confindustria, the business federation, said 29 percent of Italian firms cannot meet “operational expenses” and are starved of liquidity. A “third phase of the credit crunch” is underway that matches the shocks in 2008-2009 and again in 2011.

In a research report the group said the economy was caught in a “vicious circle” where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.

Franco Bernabè, the head of Telecom Italia, echoed the warnings, lamenting that firms are literally “dying from lack of liquidity”. He called on the Bank of Italy to take bolder action to head off disaster. “The Italian economy is being suffocated. The country must intervene rapidly to reinject funds into the economy”, he said.

Late payments have become a chronic problem across the board in Italy, with 47,000 official complaints last year. The research group CGIA di Mestre said half of small companies cannot pay their staff on time.

Loans To Businesses and Households Plunge

Backing up what Ambrose Evans-Pritchard said with hard data, the Italian site Il Sole 24 Ore reports New Fall in Bank Lending to Households and Businesses.

Loans to businesses and non-financial families continue to face strong decrease. In February, according to the estimates in the monthly report of ABI were down 2.84% trend (-2.79% in January).

In 2012 there has been a strong leap in non-payments, up 8.8% compared to 2011. Compared to 2007, the last year before the crisis, the increase is 45 percent.

Total gross non-performing loans amounted to 6.4% in January 2013, up from 5.4% a year earlier (+17.5% YoY). With regard to small businesses, NPLs has more than doubled since 2008, rising from 3% to 7.4%. NPLs in family businesses rose from 7% to almost 12 percent. Gross NPLs totaled 126.1 billion in January.

In the construction sector companies the number of non-payments rose by 10,700 up 80% since 2007.

Italy Proposes Easing Stability Pact

In the “Germany is Not Going to Like This” category, Il Sole 24 Ore reports Italy Proposes Easing Stability Pact while lowering growth estimates and increasing deficits.

The government intends “loosen the constraints of the stability pact to allow the use of further resources.”

Italy finance minister Vittorio Grilli says the proposal is to “increase our potential debt of 20 billion per year in 2013 and 2014, to create the cash on hand to pay for” expenses.

In this context, the government cuts economic growth forecasts: GDP in 2013 will drop by 1.3% from a previous estimate of -0.2%. GDP is expected to drop by 1.7% in 2014.

The 2013 deficit was revised up to 2.9% from 1.8%. The minister stressed that the increase of debt of 40 billion, to pay the debts of the government, is the “ceiling.”

Reflections on “The Ceiling”

Note the euphemism “create cash on hand to pay for expenses” by going another 40 billion in debt. Also note the increase in debt of 40 billion euros is “the ceiling”.

Care to bet? If so, care to bet that GDP estimates will not be lowered again?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

German Economist Proposes "One Time" Cyprus-Like 15% Wealth Tax on Italians; Italy Proposes Easing Stability Pact; Is Italy the Next Cyprus?

EU Blinks Already? Staged Vote? Cyprus Finance Minister Proposes Deal with Russia; Will That Fly?

Staged Vote?

In spite of the 1-Not Present, 36-No, 19-abstentions vote in the Cypriot parliament, one really has to wonder if this was a staged vote to show solidarity with Cypriot citizens, with some sort of face-saving deal already approved for tomorrow (in which the Cypriot parliament votes yes by a slim majority in return for minor concessions from the ECB and Germany).

In short, it is unclear if we really know what is happening in the Cypriot parliament.

Note: I originally posted that as 1-Yes vote but the “1″ was actually a member of parliament who was not present.

EU Blinks Already?

While pondering that thought, please consider the Bloomberg Tweet “The ECB reaffirms its commitment to provide liquidity as needed within the existing rules”

What precisely does that ECB statement mean? Did the ECB just blink, or was that a meaningless statement counting on “existing rules” to lay the hammer on Cyprus once things calm down a bit?

What About Russia?

In other conflicting news, a CNBC headline reads Gazprom Is or Is Not Offering Cyprus a Bailout.

The latest news: Russian energy giant Gazprom either has or has not offered to bail out the country in exchange for exploration rights.

Cypriot President Nicos Anstasiades is not willing to discuss the Russian’s offer, according to Newsit, [which] cited an anonymous source close to the President.

But the Russian news agency ITAR-TASS says no such offer is on the table although the offer has been “initiated.” Also, Gazprombank’s spokesman both could and could not be reached for comment.

Well, that sure clears things up, doesn’t it?

And adding to the confusion, there were rumors today that Cyprus Finance Minister Resigns, President Refuses To Accept Resignation, complete with official denials.

Is there a Gazprom Offer On the Table?

World News Australia reports Cyprus finance minister heads to Russia amid an explosion of anger over a bank levy that could cost investors billions of euros.

Cyprus Finance Minister Michalis Sarris is heading to Moscow amid an explosion of anger over an EU bailout deal that could cost Russian investors billions of euros.

Local media said the main aim of the visit was to discuss a 2.5 billion euros ($ A3.14 billion) loan that Moscow extended to Nicosia in 2011 at a rate of 4.5 per cent.

Sarris’s brief was to lower that rate and extend the loan’s expiration date until 2020 from 2016, the reports said.

In exchange, Moscow was reported to be seeking details about Russian billionaires who held accounts on the island. Russia was also said to be interested in buying a majority stake in Cypriot lender Patriot Bank that is in need of rescue.

Cyprus Finance Minister Proposes Deal with Russia

The Wall Street Journal reports Cyprus Finance Minister to Offer New Plan in Bid for Russian Support

Cyprus’s finance minister is set to present a plan to his Russian counterpart in Moscow Wednesday aimed at saving the country’s financial sector, a government official said Tuesday.

The official said that Michalis Sarris, who is being accompanied by a delegation of businessmen, is going to propose a deal that includes imposing a 20% to 30% levy on Russian-held deposits in Cypriot banks, which could cost them billions of euros. In exchange, Russia will be given equity in Cyprus’s future national gas company and some additional strategic benefits in the sector, while Russian investors would be given control of the board of directors at Cyprus’s banks.

There were unconfirmed reports Tuesday that Mr. Sarris had resigned as finance minister, but officials did say he was on a plane heading for Russia.

However, the deal looks like a long shot. Ahead of the visit, Kremlin spokesman Dmitry Peskov said: “It’s practically impossible to talk without knowing the details.”

“The situation is very difficult–unprecedented–and we don’t understand what’s happening,” he said. Mr. Putin hasn’t spoken to his Cypriot counterpart, he added.

What’s Really Happening?

“The situation is very difficult–unprecedented–and we don’t understand what’s happening.“

That line is a succinct summation of the situation regarding stages votes, the possibility of the ECB blinking, and Gazprom offers.

One thing is for sure, if the ECB did blink, one of the reasons would be fear of driving Cyprus further into the hands of Russia.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

EU Blinks Already? Staged Vote? Cyprus Finance Minister Proposes Deal with Russia; Will That Fly?

AP sources: Boeing proposes battery fix for 787s

WASHINGTON (AP) — Boeing attempted a major step Friday toward getting its 787 Dreamliners flying again, proposing a fix for the plane’s troubled batteries that could allow the flights to resume as early as April, congressional officials said.
Business Headlines

AP sources: Boeing proposes battery fix for 787s

Boeing proposes full 787 battery fix to FAA: sources

Logos of some Boeing 787 commercial airline clients are seen on a fuselage of the aircraft at the Singapore Airshow in Singapore February 14, 2012.

Credit: Reuters/Kevin Lam

By Andrea Shalal-Esa and Alwyn Scott

WASHINGTON/SEATTLE | Fri Feb 22, 2013 8:02pm EST

WASHINGTON/SEATTLE (Reuters) – Boeing Co on Friday gave U.S. aviation regulators its plan to fix the volatile battery aboard its new 787 Dreamliner, even though investigators have not yet determined what caused the batteries to overheat on two planes last month.

Boeing did not propose abandoning the lithium-ion batteries and is not working on a backup or longer-term fix for the problem that has grounded its entire fleet of 50 Dreamliners for nearly five weeks, three sources familiar with the plan said.

The company and the U.S. Federal Aviation Administration said no firm result emerged from the meeting between Deputy Transportation Secretary John Porcari, FAA Administrator Michael Huerta and other FAA officials and Boeing Commercial Airplanes CEO Ray Conner and other senior Boeing executives in Washington.

With Boeing’s costs mounting by millions of dollars a day while the planes are on the ground, the FAA said it is “reviewing a Boeing proposal and will analyze it closely. The safety of the flying public is our top priority and we won’t allow the 787 to return to commercial service until we’re confident that any proposed solution has addressed the battery failure risks.”

Boeing declined to comment on the details of its proposal, but said the meeting with the FAA was productive.

The proposal to the FAA includes measures to address a range of possible causes of short-circuits in the batteries, the sources said.

Five weeks ago, U.S. authorities grounded the worldwide fleet of 787s. U.S., Japanese and French investigators are still not certain what caused the battery fire aboard an All Nippon Airways 787 in Boston and an overheated, smoking battery on a Japan Airlines 787 in Japan.

The proposed fix includes adding ceramic insulation between the cells of the battery to help keep cells cool and prevent a “thermal runaway” in which one cell overheats and triggers overheating in adjacent cells. It also includes building a stronger, larger stainless steel box with a venting tube to contain a fire and expel fumes outside the aircraft should a battery catch fire again, the sources said. In addition, the plan proposed wiring changes, self-torquing screws that won’t come loose and battery alterations to prevent moisture and vibration problems, one of the sources said.

But there was also a plan to use a different battery type or some other longer-term fix, the sources said.

“I have talked to a number of people who are working directly on these batteries. No one is on the Plan-B team,” said a person familiar with Boeing’s efforts who was not authorized to speak publicly about them.

A second source, who also was not authorized to speak publicly, said Boeing does not view its proposal as a temporary “band-aid” that would be supplanted by another solution later.

Boeing spokesman Marc Birtel said in a statement: “We are encouraged by the progress being made toward resolving the issue and returning the 787 to flight for our customers and their passengers around the world.”

Birtel reiterated that hundreds of engineers and technical experts are working “around the clock” to return the 787 fleet to service. “Everyone is working to get to the answer as quickly as possible and good progress is being made,” Birtel said.

Boeing’s stock closed up 65 cents, or 0.86 percent, at $ 75.66 on the New York Stock Exchange.

Richard Aboulafia, aerospace analyst with the Teal Group in Virginia, said Boeing needed a backup plan in case the FAA did not approve its proposal.

“It’s a bit tone deaf to propose containment and management when the political winds are favoring an elimination of the risk,” he said, citing Transportation Secretary Ray LaHood’s insistence that the plane would return to flight only when it was “1000 percent safe” and similar remarks by other officials.

“They need to be out there talking about a bigger solution beyond mere containment because the political winds and public opinion are not going to favor a solution that’s focused on fire and smoke management,” Aboulafia said.

He noted that Airbus had already signaled its plan to switch back to more traditional nickel cadmium batteries for its A350 airliner, but the 787 was far more dependent on electrical power, which would complicate any effort to switch to a different type of battery. A complete redesign could take around nine months to implement, he said.

Others said that kind of solution could take two years.

The U.S. National Transportation Safety Board is still investigating the Boston fire and the Japan Transportation Safety Board is investigating the battery failure in Japan. Neither has found a root cause for the problems.

The sources said the NTSB might never find the root cause because the battery in Boston was severely damaged by the fire.

Given the financial cost of the grounding for Boeing and the airlines that own the jets, estimated at $ 200 million a month, Boeing decided to address all possible causes with the measures, rather than wait for the NTSB to identify one specific cause, the sources said.

Boeing engineers have been working with outside experts and U.S. government officials to address possible cause of the battery issues. The team includes experts from the U.S. Navy and the National Aeronautics and Space Administration, which uses a lithium-ion battery on board the International Space Station.

Boeing engineers went through a “fault tree” and “came up with a list of half a dozen things that could have led to problems,” said a congressional source who had been briefed on the matter, but was not authorized to speak publicly.

“They have a list of things that it could be, and the fixes are designed to address that list of problems,” the source said.

If the NTSB’s investigation turns up additional possible causes, those would be added to the mix, another of the sources said.

Asked why the company’s extensive testing of the batteries had not revealed problems with the batteries and the electrical systems used to operate them, one of the sources said test environments had limitations and the real test of an aircraft always came when it was actually operating.

If the Boeing plan is approved by FAA Administrator Huerta and Transportation Secretary LaHood, company officials expect the 787 fleet to return to service within eight weeks, one source said.

Another source, who is also familiar with the 787 investigation but not authorized to speak publicly, said a key challenge for Boeing would be to redesign the battery box so that it could truly contain a fire if one occurred.

Despite Boeing’s statements about containment being the plan for a battery issue from the start, the blue box that held the current lithium-ion battery was clearly “not designed to contain a fire,” said the source.

Another person familiar with the engineering work said the new box would be made of stainless steel nearly half an inch thick. It would be capable of containing an explosion, and would have a tube to vent smoke and flame outside the jet.

However, the source said engineers have raised questions about the safety of venting flames outside the plane, especially if it is on the ground and being fueled. The effect could be something like a flamethrower, this person said.

(Reporting by Andrea Shala-Esa and Alwyn Scott; Editing by Gerald E. McCormick, Dan Grebler, David Gregorio and Gunna Dickson)

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Reuters: Business News

Boeing proposes full 787 battery fix to FAA: sources