Berkshire Hathaway may face a challenge from bondholders led by Elliott Management Corp to its $9bn all-cash deal for Texas utility Oncor Electric Delivery Co.
Billionaire investor Paul Singer’s Elliott, the biggest creditor of Oncor’s bankrupt parent Energy Future Holdings Corp, may seek to put together a rival bid, according to a person with knowledge of the matter. The hedge fund is considering joining with some existing creditors and other strategic infrastructure funds for a counteroffer. Elliott’s plan may entail converting debt in the company to equity, said the person, who asked not to be identified because the discussions are private.
“Elliott might try to woo creditors with better recovery terms than Berkshire, but investors may just want closure as this process has dragged on for quite some time,” Bloomberg Intelligence analyst Stacy Nemeroff said.
A representative for Elliott declined to comment on the potential offer. Berkshire Hathaway Energy declined to comment on whether it had held any discussions with Elliott. Oncor also declined to comment.
The energy unit of Warren Buffett’s Berkshire Hathaway on Friday became the third company to try to buy Oncor, a takeover that’s key to ending the bankruptcy of Energy Future, which began in April 2014. Just a week ago, Texas regulators rejected NextEra Energy’s $18.4bn bid to buy Oncor for a third time. Last year, it quashed an offer from Hunt Consolidated.
Unsecured creditors are getting a raw deal in the Berkshire Hathaway proposal compared with the previous offer from NextEra, according to CreditSights analyst Andy DeVries.
“Buffett may meet with the unsecured creditors and hear them out,” DeVries said. “But there’s no way they’ll get a deal that pays them as much as NextEra was willing to pay.”
Last month, Elliott’s bid to pursue a reorganisation plan for Energy Future appeared to stall when the company rejected the hedge fund’s attempt to help refinance $5.5bn in debt that matured at the end of June. Instead Energy Future won court permission to pay fees to extend the maturity of that debt.
Elliott had sued Energy Future in May seeking court rulings that would make it easier for the firm to negotiate a takeover of Oncor. Key court hearings related to that lawsuit were put off, preventing Elliott from pressing its case for a quick ruling. Not initially an investor in the company’s debt, according to its bankruptcy filings, Elliott accused it of failing to pursue restructuring alternatives even as its deal with NextEra fell through.
Elliott holds around $782mn in first lien notes, $921mn in second lien notes, and $1.16bn in PIK notes, according to a May 11 court filing.
Elliott also disclosed an activist stake in NRG Energy in January and it partnered with Bluescape Resources led by C John Wilder. Perhaps not coincidentally, Wilder was chief executive officer of TXU Corp and helped orchestrate the massive leveraged buyout that turned it into Energy Future. This is another reason the Texas Public Utility Commission may be wary of allowing a bid from Elliott, said Bloomberg Intelligence’s Nemeroff.
Reuters reported earlier on Friday that Elliott is exploring an offer for Oncor Electric.
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