Today, Energy Future Holdings Corp. (“EFH“), a Texas corporation, and several of its subsidiaries, including TXU Energy (collectively with EFH, the “Debtors“), filed for chapter 11 bankruptcy relief. The Debtors are the largest generator, distributor and certified retail provider of electricity in Texas. The Debtors disclosed approximately $42 billion in funded indebtedness and EFH disclosed total assets of approximately $36.4 billion in book value. EFH’s consolidated annual revenues for the year ending December 31, 2013, were approximately $5.9 billion. Along with non-Debtor subsidiaries, the Debtors employ approximately 9,100 people.
The Debtors mentioned in their “first day” papers that while their operations (i.e., Luminant, TXU Energy and Oncor) are strong, their balance sheets are over-leveraged. Thus, chapter 11 bankruptcy provides them with an opportunity to restructure their balance sheets (and thus become more profitable in the future), while maintaining their current positions as leaders in the Texas electricity market.
Why Not Texas
This mega bankruptcy case was filed in Delaware. However, Wilmington Savings Fund Society, FSB, the indenture trustee for certain senior secured second lien notes, filed a motion to transfer the venue of the bankruptcy cases to the United States Bankruptcy Court for the Northern District of Texas, arguing, among other things, that (a) the Debtors, as a whole, have very thin ties to Delaware. (b) the Debtors’ headquarters are located in the Northern District of Texas (i.e., Dallas, Texas) and (c) substantially all of the Debtors’ assets, employees and customers are located in Texas.
Delaware Courts are very familiar with these types of venue requests. In general, the Bankruptcy Code provides very generous venue provisions that allow most debtors the choice of where to initiate a case. So, do not be surprised if the case stays in Delaware. However, this factor should bear little weight on the restructuring of the Debtors, as the Bankruptcy Code provides a uniform set of laws for all federal courts to follow and those laws are only supplemented somewhat by the judicial decisions generated by each jurisdiction. Once the legal issues in the case surface, this may reveal more about the rationale behind the selection of venue.
In the meantime, it is highly unlikely that anyone in Texas (or any part of the world) will need to turn his or her lights off.