Tender offers that might not be possible outside of bankruptcy court got a blessing from a federal district judge in an appeal involving the reorganization of Energy Future Holdings Corp., Bloomberg News reported yesterday. Energy Future, the Dallas-based power generator and distributor, filed for chapter 11 reorganization in April and got bankruptcy court approval in June to settle with holders of two issues of first-lien notes issued by the unit that owns 80 percent of the company’s regulated Oncor power-line business. The settlement allowed Energy Future to pay off first-lien debt with 5 percent extra for holders who gave up claims for a “make-whole,” a premium investors can collect when their bonds are paid off early. The settlement was financed with a $5.4 billion loan approved at the same time. The indenture trustee for one of the noteholder groups appealed and contended that the settlement was a coercive tender offer that wouldn’t pass muster outside bankruptcy and shouldn’t have been allowed in bankruptcy either. Delaware Trust Co., as indenture trustee for holders of 10 percent first-lien notes, argued on appeal that the decision established a precedent which would “open a Pandora’s Box of coercive tender offers in chapter 11.” U.S. District Judge Richard G. Andrews explained in his opinion that the differing recoveries resulted from maturity dates and interest rates on the two issues that weren’t identical. The judge rejected the argument that tender offers can’t be used in chapter 11 reorganizations before plan approval because the Securities and Exchange Commission isn’t involved in the process of approving solicitation materials as it would be outside of bankruptcy.
