Dallas-based Energy Future Holdings, Texas Biggest Power Generator, Piles On More Debt

Categories: Biz

TXU_BigBrown-coal-plant.jpg
EFH's Big Brown Coal Plant.
The announcement that Energy Future Holdings, the biggest generator of electricity in Texas, is going to issue $750 million in debt probably could have been timed better.

Earlier this week, the company announced it was going to terminate the pensions of about a third of its workforce by the end of they year. The week before that, EFH announced a second-quarter loss of $696 million. That was down from a $705 million loss the year before, but it still amounted to an 18 percent decline in revenue.

The $750 million in debt, due by 2017 and 2022, will be used for a few purposes, though none are described in detail in its Securities and Exchange Commission filing. The proceeds are intended to repay an inter-company loan from Texas Competitive Electric Holdings, its retail and generation subsidiary (stay with me here), to the parent company, EFH. Some of it, the release says, will be used to pay dividends to EFH. The rest will go toward some nebulous "general corporate purposes."

EFH, like most of the generators in Texas, has struggled over the last several years with low electricity prices, primarily set by the price of natural gas. But unlike most Texas generators, EFH has $42 billion in merger debt to pay off. When the former TXU was purchased by private equity lenders led by Kohlberg Kravis Roberts, they were betting on the high price of natural gas setting a high price for electricity. The opposite happened, and since then, EFH has sought to refinance debt it can't currently afford to pay and push it further out into the future.


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17 comments
craig
craig

How likely is it TXU retail will be sold for it's customer base to another REP? They have lost customer share quarter over quarter. In the short term wouldn't there need to be employee downsizing and cash to handle severance packages for TXU, Luminant, and EFH staff? I thought I read they still employeed about 9000 people. (Not sure if Oncor would be impacted by a downsizing need.)  On the other hand, maybe having extra cash on hand ensures bonus funding available. I am sure it's difficult work to dream up how to take on more debt.

ThePosterFormerlyKnownasPaul
ThePosterFormerlyKnownasPaul topcommenter

The implosion is not that far away.  KKR and TPG are just buying time so that there is at least two years between this strip and the eventual bankruptcy.

 

The declining customer base is just a smokescreen, the generating portion is selling all that they can produce.

JoeBlow
JoeBlow

"Some of it, the release says, will be used to pay dividends to EFH's shareholders."

 

Really, you need to hire a lawyer to review this crap before you "publish" it.  Or at least re-read the damn press release first. 

 

The "dividend" will be paid by EFH's subsidiaries, which are issuing the debt, to EFH.  EFH will then use the proceeds to pay its internal debt to a different subsidiary.  It doesn't say what that subsidiary is going to do with the money, but my guess is pay down some other debt.  In any event, the press release itself says nothing of a dividend to EFH's shareholders.     

oakclifftownie
oakclifftownie

"Some of it, the release says, will be used to pay dividends to EFH's shareholders."

 

Bringing in new funds to pay funds to those already invested ......

I think I have heard of this before ....Just not sure of where or when  Any Clues to what this kind of funding might be called ?

 

 

cynicaloldbastard
cynicaloldbastard

"will be used to pay dividends to EFH's shareholders."

 

Which would be the top executives and KKR.

Montemalone
Montemalone topcommenter

This money will all be going directly into the pockets of the genii who loaded EFH up with massive debt in the first place.

To be paid back with interest from that little charge on your bill each month.

brantley.hargrove1
brantley.hargrove1

 @JoeBlow "The remaining proceeds will be used for general corporate purposes, which may include the payment of dividends to EFH."

barbarian
barbarian

 @JoeBlow EFH is forbidden from doing things such as dividend recapitalizations.Otherwise KKR & Co would have tried to recoup their investment like they did for HCA Holdings for example

 

Dividend Recap are in my opinion the nastiest thing in Private Equity

Consumerist
Consumerist

 @Montemalone There are other power generators in Texas that compete with EFH so maybe your bill but not mine. Incidently I am paying the lowest rates I have in a long time after shopping around and locking in last December. 

JoeBlow
JoeBlow

 @brantley.hargrove1 Yes.  Read that line very closely.  Where does it say that EFH will pay a dividend to its shareholders?  It doesn't. It says that two of EFH's subsidiaries may pay a dividend to EFH.  What EFH does with the money is not disclosed, but I would guess it will not include a dividend to EFH shareholders.  I suppose it's theoretically possible, but the release doesn't suggest it and as barbarian pointed out, it is most likely impossible.   

 

Some people I could easily forgive for not understanding the meaning of the word "to", as in "payment of dividends TO EFH."  But you are in the language business.  I would have expected you to know the different between "payment of dividends TO EFH" and "payment of dividends [FROM] EFH [to EFH's shareholders]."  I certainly would have expected you to notice the difference after your error was pointed out. 

scottindallas
scottindallas topcommenter

 @barbarian  @JoeBlow this whole thing is nasty.  Reregulate electricity NOW!.    Brant, I wish you'd ask some democrats if they'd propose reregulating electricity.  It's stunning that such an utter failure has no advocates for undoing this fucking disaster.

scottindallas
scottindallas topcommenter

 @Consumerist  @Montemalone and, that shopping around is a waste of your time as well.  Why not have everyone enjoy one low rate?  No ads, no waste. 

 

This isn't true of free markets, but utilities aren't free markets.

scottindallas
scottindallas topcommenter

 @Consumerist no, you're wrong.  The cost of the system is higher.  The basis, (gas prices) is lower.  The system costs more, is more wasteful (as all ads are a waste of money)  If we were still regulated, our prices would still be lower.  Compare our prices to OK, who has a private regulated utility that is paying a dividend.  Meanwhile, our generators are going bankrupt.  You're really thick headed, so I understand why you don't get it. 

Consumerist
Consumerist

 @scottindallas actually there are many power generation companies.

http://www.puc.state.tx.us/industry/electric/directories/pgc/search_pgc.aspx

The reason rates are supposedly higher under deregulation is because people do not shop around. If you care to argue this further I will find the link to the oft referenced report and show the primary reason for "higher" rates is because folks do not actively seek the best deals. Your comment below is also nonsensical due to this fact.

scottindallas
scottindallas topcommenter

 @Consumerist  @Montemalone there IS no competition for power generation.  You are the one who is confused my friend.  Brown outs wouldn't be an issue if we had excess capacity.  You're currently paying what seem to be low rates, cause we're in a natural gas glut.  But, we're still paying higher rates than we would be if we'd never deregulated. 

 

When deregulation was being proposed, our regulated market was set to have excess capacity, and our rates were set to only fall over time.  "Deregulation" of utility markets is an unalloyed fraud perpetrated on consumers.  Notice that in utility markets there are no "customers" only "consumers"  

 

Perhaps you think you're undecided whether you want electricity or not--obviously that's absurd, you have no alternative, no real choice; which are defining characteristics of  free markets.  Rather, every ad that runs for an electric customer service branch is an utter waste of money.   If half those ads were put into power generation, we could have replaced our dirtiest coal plants with cheaper, cleaner natural gas generation.   You're the sucker PT Barnum was talking about.

Consumerist
Consumerist

 @Montemalone you are ignoring the fact that Oncor is currently isolated from the power generation arm of EFH and is regulated on pricing due to the fact that there is no competition among the transmission sector (power grid). 

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