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Texas power company Energy Future files for bankruptcy

The Luminant Lake Hubbard natural gas power plant, a subsidiary of Texas Energy Future Holdings LP, stands in Dallas, Texas.
Matt Nager | Bloomberg | Getty Images
The Luminant Lake Hubbard natural gas power plant, a subsidiary of Texas Energy Future Holdings LP, stands in Dallas, Texas.

Energy Future Holdings, a Texas power company, filed for bankruptcy protection on Tuesday, seven years after its record leveraged buyout stacked it with debt just as prices for its electricity plunged.

The former TXU Corp owes tens of billions of dollars to hedge funds and investment firms, and the Chapter 11 filing is among the largest ever.

The company said it entered bankruptcy with significant deals in place with creditors that would eliminate approximately $40 billion in debt.

Still, the filing could mark the start of years of expensive court-supervised negotiations, as indicated by one of the first filings on the docket. Junior creditors made an unusual request to transfer the case from Wilmington, Delaware to Dallas, the company's hometown.

The company also said it reached an agreement to borrow $11.8 billion through two loans to finance operations during the Chapter 11 bankruptcy.

Energy Future joins a list of operators of coal-fired power plants that have struggled in recent years as new drilling technology created a glut of natural gas. Low gas prices drag electricity prices down and make coal-fired plants uncompetitive.

Luminant, the company's generation business, and Oncor, its regulated distribution unit, both rank among the largest in the United States.

Oncor has not filed for bankruptcy protection, Energy Future said.

Consumers were not expected to be affected by the bankruptcy. The company said it sees exiting bankruptcy in 11 months.

The company said it had deals in place to sever its Texas Competitive Electric Holdings (TCEH) unit from the parent company, without triggering a tax liability, which was a key sticking point in recent months of negotiations.

TCEH would emerge from bankruptcy under the ownership of its first-lien lenders, who would also receive cash.

Under a restructuring plan, the Energy Future Holding parent would continue to own its Energy Future Intermediate Holding, which in turn owns Oncor.

Energy Future Holdings said it had the support of some of the holders of first-lien and second-lien debt of EFIH as well as unsecured creditors of the parent company.

The proposed deal would cut $2.5 billion in EFIH debt.

Energy Future was created in 2007 by the $45 billion leveraged buyout of TXU Corp, led by KKR & Co, Goldman Sachs' private equity arm and TPG Capital Management.

The case is In re: Energy Future Holdings Corp, U.S. Bankruptcy Court, District of Delaware, No:14-10979.