By Peg Brickley and Jonathan Randles
NextEra Energy Inc.'s planned acquisition of one of the country's largest electricity transmissions businesses, Oncor, moved to the next phase Friday, when a judge said he would confirm the bankruptcy-exit plan of Oncor owner Energy Future Holdings Corp.
Confirmation sets the stage for hearings before the Public Utility Commission of Texas, which must approve the acquisition of Oncor, a critical element of the state's power system, by NextEra, a Florida company.
"This is a watershed moment, to say the least," Judge Christopher Sontchi said Friday.
Judge Sontchi's confirmation ruling is the second for an Energy Future bankruptcy-exit plan. An earlier chapter 11 plan built around the planned sale of Oncor to a group of investors led by Hunt Consolidated Inc. was confirmed last year, but the deal fell apart after Texas regulators put conditions on the transaction.
NextEra will pay $4.4 billion in cash and stock, plus pay off $5.4 billion in financing that helped Energy Future through bankruptcy, to gain control of Oncor, which carries power to some 10 million Texans.
Energy Future, the former TXU Corp., filed for chapter 11 protection in April 2014 with $42 billion in debt. Most of the debt was resolved when Energy Future's electricity generating and retailing businesses exited bankruptcy last year as a new company called Vistra Energy.
Parent company Energy Future remained in bankruptcy, with an 80% stake in Oncor as its principal asset. NextEra had been trying to buy Oncor since 2014. Two years later, NextEra was declared the winner of a bidding contest that revived after the Hunt deal was scrapped.
In the months leading up to Friday's confirmation ruling, Energy Future's chapter 11 proceeding was rocked by a decision from a federal appeals court in Philadelphia. Handed down in November, the ruling marked a loss for Energy Future after years of wins in an $800 million battle with lenders.
At issue was whether Energy Future was bound to pay lenders "make-whole" premiums on debt that was refinanced early in the bankruptcy proceeding. Make-whole provisions are common in sophisticated debt deals, meant to protect lenders from losing expected profits if a borrower pays off a loan early. Energy Future said its bankruptcy excused it from making the payment and, for a time, the courts agreed.
The appellate ruling shifted much of the value from the NextEra deal into the pockets of senior lenders, upsetting junior creditors and roiling the dynamics of the big chapter 11 case.
Talks ensued, and by the time Energy Future launched confirmation hearings Tuesday in the U.S. Bankruptcy Court in Wilmington, Del., agreements were in the works to settle the make-whole trouble.
Confirmation came over the protests of lawyers for people claiming asbestos injuries they say are attributable to Energy Future affiliates. NextEra has set aside $100 million to pay asbestos personal injury claims that were filed in Energy Future's chapter 11 proceeding.
The problem, according to asbestos lawyers, is that Energy Future's chapter 11 plan cut off the legal rights of people who have no way to know they have grounds for personal injury claims. The lung diseases that come from asbestos can take decades to develop. So people exposed to asbestos while on the job for Energy Future could become ill in a year or five or 10, and find their right to sue has been barred because they hadn't filed a claim in Energy Future's bankruptcy, lawyers said.
Judge Sontchi found Energy Future handled its asbestos problems fairly, and overruled the objection from the asbestos claimants. He said there was "clear evidence" that the reorganization plan was developed in good faith and doesn't preclude future asbestos claimants from seeking remedy later.
"This plan is not designed to avoid asbestos liabilities," Judge Sontchi said.
Bankruptcy was popular among companies like chemical maker W.R. Grace & Co. and building material manufacturer Owens Corning Inc., which faced daunting liability for asbestos damages. Energy Future's asbestos liabilities grew out of discontinued operations. The company never made or sold asbestos products.
Energy Future's financial struggles grew out of diving energy prices, which rendered the load of debt taken on in a leveraged buyout unsupportable.
Write to Peg Brickley at email@example.com and Jonathan Randles at Jonathan.Randles@wsj.com