By Peg Brickley and Matthew Jarzemsky

In a decision that could roil the planned bankruptcy exit of Dallas energy company Energy Future Holdings Corp., an appeals court in Philadelphia has revived bondholder claims to premium payment on their debt.

The ruling upsets decisions that allowed Energy Future to tamp down claims for more money from investors that held bonds refinanced early in its bankruptcy proceeding.

The amount at stake is significant. Last year, bondholders had filed more than $800 million in claims against Energy Future based on contract provisions that protected bondholders against early payoff of their debt.

The company declined to comment.

"We are very pleased with the decision and believe it is correct," said Philip Anker, lawyer for the bondholders.

"It's going to shift a lot of value from junior creditors back up to senior secured creditors," said John Greene, a portfolio manager at Halcyon Capital Management LP, a New York asset manager that holds Energy Future bond debt. "We feel vindicated by the decision, which enforced our contractual rights."

Hit with falling energy prices, Energy Future, the former TXU Corp., filed for chapter 11 protection in April 2014, grappling with some $42 billion in debt.

The dispute with bondholders over whether they are entitled to collect a so-called make-whole premium on billions of dollars of debt paid off early began before the bankruptcy filing.

The appeals court said a bankruptcy judge should have enforced the contract provision that protected bondholders against early payoff of their debt. Such provisions are common in the sophisticated debt deals many companies rely on for financing, but Energy Future contended its bankruptcy changed the legal situation.

Thursday's ruling is a setback for the company, which ran up a series of wins on the dispute in the lower courts.

Confirmation hearings are slated to start Dec. 1 for Energy Future's chapter 11 exit plan, which is premised on the idea the company properly escaped paying a make-whole premium when it refinanced some of its senior loans while in bankruptcy.

NextEra Energy Inc. may also have to grapple with the consequences of Thursday's appeals-court ruling. The Florida power company is poised to help Energy Future out of bankruptcy by buying its Oncor electricity transmission business in a transaction that values Oncor at more than $18 billion.

It isn't clear what the ruling that boosts Energy Future's debt by hundreds of millions of dollars will do to NextEra's takeover proposal.

NextEra spokesman Rob Gouldsaid Thursday the company is aware of the decision and reviewing it.

Thursday's ruling from the Third U.S. Circuit Court of Appeals sets the stage for a challenge to the Energy Future exit plan from bondholders.

Investors in some $4 billion in first-lien debt are now entitled to demand more than they are slated to receive under the plan, and that would mean less for other creditors of Energy Future. At the time of the refinancing, in June 2014, the make-whole premium was worth $431 million.

The amount has changed over time, as bondholders added claims for interest. First-lien bondholders may seek more than $550 million, thanks to the ruling.

The decision also affects $2.2 billion worth of Energy Future's second-lien bonds. Owners of the second-lien bonds may seek more than $200 million in premium pay. Some bond investors accepted settlement offers early in the case that reduced the make-whole premium liability.

Write to Peg Brickley at peg.brickley@wsj.com and Matthew Jarzemsky at matthew.jarzemsky@wsj.com

(END) Dow Jones Newswires

November 17, 2016 14:33 ET (19:33 GMT)

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