Energy Co. Seeks Creditor Help Against Hedge Fund Default Claims

Apr 5 2011 | 11:24am ET

Energy Future Holdings Corp., the Kohlberg Kravis Roberts- and TPG Capital-owned energy company accused of being in default by another hedge fund, has turned to its creditors to resolve that claim.

EFH has offered better terms to creditors who accept some concessions, including an affirmation that EFH did nothing wrong when it borrowed from a subsidiary. Hedge fund Aurelius Capital Management, a creditor of the subsidiary, alleges that it did, in fact, do something wrong, borrowing at unfairly favorable rates, and is therefore in default on nearly $24 billion in loans.

EFH angrily denied that claim and said that, "based on private negotiations," at least 50% of its creditors were prepared to accept that the loans were made on an "arms-length basis," as well as a longer payment schedule. In exchange, EFH is offering a half-point increase of their coupon.

"The company has shifted from dismissing our claims to paying the banks to waive them," Aurelius' Mark Brodsky said. "What we have learned in the interim confirms our view that an event of default has occurred."

EFH continued to deny that allegation. "We refute those claims," a spokeswoman for the company said. "We will continue to defend ourselves vigorously against those claims and any similar allegations, and this portion of the amendment would put those claims to rest once and for all."

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