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EFH Confirmation Day 2: Keglevic Testimony on Deal Details, Prepetition Solvency Concludes

November 4, 2015

By Reorg-Research

Keglevic Cross-Examination

Brian Glueckstein of Sullivan & Cromwell, counsel to the E-side unsecured
creditors committee, concluded his cross-examination of Keglevic shortly into
the afternoon session. Keglevic confirmed that the tax-free TCEH transaction
was a “key element” of the plan, and said that he assumed that the Hunts and
the TCEH unsecureds would be aligned in terms of willingness to close but
neither could force the other to close.

[…]

Conflicts counsel for the E-side committee, Sid Liebesman of Montgomery
McCracken, then conducted extensive cross-examination of Keglevic, focusing on
the post-LBO solvency of the debtors, the company’s “liability management
program” which included extension of certain debt maturities and sponsor-related
items including potential claims and releases in the settlement.

[…]

Liebesman took Keglevic through a number of company SEC filings showing
negative shareholder equity on a consolidated basis in years 2010 through 2014.
While verifying those filings, Keglevic testified that consolidated EFH
insolvency or solvency is a “misnomer” because EFH Corp. is not liable on the
TCEH debt. The SEC filings showed an increasing decline in shareholder equity
as a result of the decline in the TCEH business, according to Keglevic.
However, Keglevic admitted that “the math” shows that consolidated EFH would
have still had negative shareholder equity even if TCEH shareholder equity was
backed out of the equation.

[…]

The cross-examination Liebesman also focused on the LBO debt and the amend
and extend transactions, with a focus on the amount of fees paid and the total
amount of debt accumulated. Keglevic testified that the total amount of debt
increased from the time of the LBO – starting from $36 billion after the LBO –
and the amend and extend transactions resulted in over $100 million in fees
being paid the debtors. Liebesman also pointed to a February 2014 board
presentation focusing on preparations for a bankruptcy filing which included a
slide on statute of limitations issues for any claims related to a March 2010
debt exchange. Liebesman asked why the company was considering statute of
limitation issues if it was so confident that there were no significant claims
against directors and officers; Keglevic said he did not recall but that the
bankruptcy filing process began in October 2013 as a result of the Nov. 1 interest payment, which ended up being made.

[…]