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EFH Confirmation Day 4 Morning: KKR Representative Details Involvement in EFH

November 6, 2015


Reorg-Research

The fourth day of the Energy Future Holdings debtors’ plan confirmation trial began this morning without any case developments or announcements, including with respect to the pending EFIH PIK settlement. The proceedings commenced today with the direct examination of Jonathan Smidt of KKR – EFH equity owner – by Andrew McGaan of Kirkland & Ellis, counsel for the debtors. Sid Liebesman of Montgomery McCracken, conflicts counsel for the E-side unsecured creditors committee, then started cross-examination prior to the court taking a lunch recess.

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Smidt Cross-Examination
On cross-examination, Liebesman first elicited testimony that KKR’s investment in EFH was significant to the firm but also that Smidt’s personal investment in EFH as part of the LBO was “extremely material” at the time. Smidt stated that it was important to maintain the equity investment in EFH because KKR looks out for the interests of its investors and noted that he also had fiduciary duties to the company. Liebesman’s questioning on sponsor involvement on the board was focused on whether the sponsors controlled the board through the nine seats held at the EFH Corp. board. Pressed by Liebesman, Smidt confirmed that he signed an indemnification agreement on behalf of the company which indemnified Smidt personally and KKR. Smidt did state the the board also provided written consent for the indemnification.

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Liebesman then turned Smidt’s focus to the interaction of KKR’s portfolio management committee with KKR’s EFH deal team, which included a statement in an annual report indicating that the deal team would like for Keglevic to communicate more openly with KKR about discussions with investors and banks.

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Liebesman also introduced a document prepared and produced by EFH that showed a negative equity value of TCEH through 2013, but Smidt testified that KKR’s own valuation did not demonstrate a negative valuation at TCEH. Smidt also reiterated his testimony on the “sum of the parts” valuation, stating that it was not an equity valuation exercise. Smidt also testified that EFH was not deemed insolvent by KKR prior to 2013. Liebesman also took Smidt through SEC filings that showed negative shareholder equity, however Smidt testified that those are accounting and GAAP numbers and do not demonstrate the value of the business or the net equity value.

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Liebesman’s cross-examination will continue after the lunch recess.

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