Nextera Energy (NEE) Announces Bankruptcy Court Approval for Energy Future Holdings to Enter Merger Agreements

September 19, 2016 3:48 PM EDT

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NextEra Energy, Inc. (NYSE: NEE) today announced that the United States Bankruptcy Court for the District of Delaware has approved Energy Future Holdings Corp. ("EFH") entering into the previously announced definitive agreements with NextEra Energy pursuant to which NextEra Energy will acquire 100 percent of the equity of reorganized EFH, reorganized Energy Future Intermediate Holding Company LLC ("EFIH"), Oncor Electric Delivery Holdings Company LLC ("Oncor Holdings") and certain other subsidiaries, including Oncor Holdings' approximately 80 percent ownership interest in Oncor Electric Delivery Company ("Oncor"). The proposed transaction was announced on July 29, 2016. The definitive agreements are part of EFH's overall plan of reorganization that is designed to allow the company to emerge from Chapter 11 bankruptcy.

In addition, NextEra Energy today announced that certain funds advised by Fidelity Management and Research Company, which such funds are creditors of EFH, have entered into the amended and restated plan support agreement with EFH and NextEra Energy. The plan support agreement is one of the definitive agreements included in EFH's overall plan of reorganization.

NextEra Energy also said today that it expects to file soon with Oncor a joint application with the Public Utility Commission of Texas requesting approval of the proposed transaction.

"We are pleased by today's bankruptcy court ruling and view it as an important next step in the process to acquire Oncor," said Jim Robo, chairman and chief executive officer of NextEra Energy. "Our proposed transaction provides Oncor with a financially strong, utility-focused owner that shares Oncor's commitment to providing customers with affordable, reliable electric delivery service and significant value and certainty for the EFH bankruptcy estate. With this important milestone behind us, we look forward to working closely with additional EFH creditors to gain their support for successful confirmation of EFH's plan of reorganization and, together with Oncor, filing our joint application for transaction approval soon with the Public Utility Commission of Texas."

Benefits to Oncor and its customers

Should the necessary approvals be obtained, Oncor will join a family of companies that shares its commitment to making the smart, long-term investments necessary to maintain and support affordable, reliable electric service. In returning Oncor to a traditional utility ownership structure, the proposed transaction is expected to, among other things:

  • Extinguish all EFH and EFIH debt that currently resides above Oncor as part of the closing;
  • Improve Oncor's financial strength and credit ratings resulting in more favorable borrowing rates to fund necessary capital investments – based solely on the news of the merger announcement, Moody's Investors Service upgraded Oncor's senior secured credit rating from Baa1 to A3 and placed the rating on review for further upgrade. In addition, Standard & Poor's Financial Services revised Oncor's outlook to positive from developing and Fitch Ratings placed Oncor on Rating Watch Positive;
  • Ensure the support of Oncor's existing five-year capital plan, which includes substantial and necessary planned capital improvement projects across the state;
  • Enhance Oncor's ability to provide safe, reliable and affordable electric delivery service to its customers well into the future by partnering with a world-class energy company with a long-term commitment to Texas;
  • Retain local management, the Dallas headquarters and the Oncor name;
  • Provide workforce stability and protections for Oncor employees, including no material involuntary workforce reductions at Oncor for at least two years after the transaction closes;
  • Embrace a robust set of regulatory and governance commitments regarding electric reliability, operations, employee protections, accounting, code of conduct and Public Utility Commission of Texas reporting; and
  • Eliminate the financial risks to Oncor created by the 2007 EFH acquisition and facilitate the resolution of the EFH bankruptcy.

Benefits to creditors

The proposed transaction provides significant value and certainty for the creditors of the EFH bankruptcy estate. With creditor repayment composed primarily of cash, the transaction would deliver a high degree of certainty of value to the EFH bankruptcy estate.

Transaction details and approvals

Today, NextEra Energy signed a merger agreement amendment with EFH that, among other things, increased the previously announced purchase price by $300 million. As part of the transaction, NextEra Energy intends to fund $9.8 billion, primarily for the repayment of EFIH debt for an implied total enterprise value of $18.7 billion. Of that amount, it is expected that certain creditors will be paid primarily in cash with the remainder in NextEra Energy common stock. The number of shares issuable to such creditors and EFH creditors will be determined based on the estimated cash on hand at EFH at the closing of the transaction, the volume weighted average price of NextEra Energy common stock for a specified number of days leading up to the closing and other factors specified in the definitive agreements. NextEra Energy intends to use a combination of debt, convertible equity units and proceeds from asset sales to fund cash being provided to creditors.

The transaction is not subject to any financing contingencies. NextEra Energy intends to repay in full the EFIH first lien debtor-in-possession ("DIP") financing facility (currently approximately $5.4 billion principal amount) using cash financed by a non-EFH/Oncor NextEra Energy affiliate upon closing. As part of EFH's plan of reorganization, the transaction would extinguish all EFH and EFIH debt that currently exists above Oncor.

Except as set forth in the merger agreement, EFH is now prohibited from soliciting proposals from third parties. At any time prior to confirmation of the EFH plan of reorganization, which is currently anticipated to occur in December, should EFH terminate the definitive agreement because it chooses to proceed with a superior alternative transaction, EFH would be obligated to pay NextEra Energy a $275 million termination fee upon the closing of the alternative transaction.

The transaction is subject to bankruptcy court confirmation of EFH's plan of reorganization, approval by the Public Utility Commission of Texas and the Federal Energy Regulatory Commission, the expiration or termination of the waiting period under the Hart-Scott-Rodino Act, and other customary conditions and approvals.

NextEra Energy expects the transaction, which has been approved by the boards of directors of both NextEra Energy and EFH, to be completed in the first quarter of 2017.

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