When a Tennessee business has accumulated billions of dollars in debt, bankruptcy is only inevitable. Even a debt restructuring could cost tens or hundreds of millions of dollars - a large sum of money for even the most successful business. According to recent reports, Dallas-based Energy Future Holdings is in serious financial trouble as revenues decline and debt increases.
The company owes creditors a whopping $40 billion. Negotiations are taking place, with Energy Future Holdings considering two proposals. But whether or not both sides will agree on a repayment structure has yet to be seen.
Taxes are making the situation even worse. Energy Future Holdings has considered splitting up and selling the transmission side of the business to another company. But that sort of move would be costly, with the result being a massive tax bill from the IRS.
The company goes into default on May 1 and has already delayed a $109 million payment that was due on April 1. Plus, with seven layers of creditors, it's highly unlikely that Energy Future Holdings will strike a deal that will allow it to stay out of business bankruptcy.
With such a huge amount of debt, Chapter 11 bankruptcy or another form of business bankruptcy seems very likely. In many cases, the debts are discharged, assets are liquidated and the company goes out of business. In some cases, the company will have the opportunity to reorganize by creating a solid repayment plan. Sometimes the court will allow a repayment plan that spans several decades. The company will have to find ways to increase revenue while decreasing debt. This may mean closing departments that are not very successful and even conducting layoffs.
Source: The Dallas Morning News, "Clock ticking, bankruptcy near for Energy Future Holdings," James Osborne, April 25, 2014