Tender Offer Approved To Implement Classwide Debt Exchange Outside Plan Of Reorganization

Debt-for-equity swaps and debt exchanges are common features of out-of-court as well as chapter 11 restructurings. For publicly traded securities, out-of-court restructurings in the form of "exchange offers" or "tender offers" are, absent an exemption, subject to the rules governing an issuance of new securities under the Securities Exchange Act of 1933 (the "SEA") as well as the SEA tender offer rules. By contrast, it is generally understood that the SEA rules do not apply if an exchange or tender offer takes place as part of a restructuring under chapter 11 of the Bankruptcy Code, which provides in section 1145 that certain federal and state securities laws do not apply to the offer or sale of securities under a chapter 11 plan.

In Del. Trust Co. v. Energy Future Intermediate Holdings, LLC (In re Energy Future Holding Corp.), 2015 BL 44121 (D. Del. Feb. 19, 2015), the district court affirmed a bankruptcy court order approving a settlement between the debtors and certain secured noteholders. The vehicle for the settlement was a postpetition tender offer of old notes for new notes to be issued under a debtor-in-possession ("DIP") financing facility. The district court ruled that a tender offer may be used to implement a classwide debt exchange in bankruptcy outside a plan of reorganization. It also held that the Bankruptcy Code's confirmation requirements do not apply to a pre-confirmation settlement and that the settlement at issue did not constitute a sub rosa chapter 11 plan.

Energy Future

Known as TXU Corp. until 2007, when it was acquired in what was then the largest leveraged buyout ever, Texas-based Energy Future Holding Corp. and its subsidiaries (collectively, "Energy Future") filed for chapter 11 protection on April 29, 2014, in the District of Delaware to implement a restructuring that would split the company between groups of creditors and eliminate more than $26 billion in debt. Energy Future is organized into two principal businesses, one of which is Energy Future Intermediate Holdings, LLC ("EFIH"). EFIH owns 80 percent of Oncor Electric Delivery Co. LLC, the largest regulated utility in Texas.

EFIH's capital structure includes $4 billion of first-lien notes, $2.2 billion of second-lien notes, and $1.7 billion of unsecured notes. The first-lien notes consist of two separate tranches: $3.5 billion of 10 percent notes due 2020 (the "10% Notes") and $500 million of 6⅞ percent notes due 2017 (the "6⅞% Notes"). Both issuances of first-lien notes include identical "make-whole" provisions that protect the noteholders from early redemption. However, the amount of the make-whole premiums payable in respect of the 10% Notes and the 6⅞% Notes differs to account for the different interest rates and maturity dates governing the instruments.

On the bankruptcy petition date, Energy Future filed a restructuring support and lockup agreement that documented a broad settlement reached among Energy Future and various creditors. This "global settlement" included a settlement...