Like A Vampire, Wall Street Will Drain TXU Until There's Nothing Left

Categories: Biz

gordon gekko.jpg
Seriously, guys, high-five.
At least for now, Dallas-based electricity and transmission giant Energy Future Holdings, the former TXU, is paying off its debts. Technically, it's completely insolvent, but that hasn't stopped the Wall Street firms who purchased the company in the biggest leveraged buyout in history from extracting hundreds of millions of dollars in fees.

Bloomberg Businessweek paints a dire portrait of greed and impending collapse in a recent story. Energy Future's total liabilities, it reports, come to more than $52 billion. It's only worth $44 billion. With quarterly loss after quarterly loss, Moody's has characterized the company as "unsustainable," marching inexorably toward bankruptcy, Worry not, though. KKR & Co., TPG Capital and Goldman Sachs are still making money. They've paid themselves $528.3 million in fees, even as Energy Future toes the brink of insolvency. According to Bloomberg, the management fees these firms charge are 25 times greater than average.

When they bought the company with a lot of borrowed money, leveraged right up to the hilt in 2008, they saddled Energy Future with all that debt. It looked like it would work out for a little while. Its fleet of coal-fired plants were raking it in as the going price for electricity rose with the price of natural gas. Then the bottom dropped out. Natural gas glutted the market, and the recession cut demand off at the knees. Suddenly, all that debt became a lot less manageable when the profit margins evaporated. So, the company has had to borrow more and more, in order to make ridiculous interest payments, and to pay the Wall Street guys.

Says Tom Sanzillo, former deputy comptroller for New York, and the finance director for the Institute for Energy Economics and Financial Analysis (who was also a great help as we researched a feature story on the subject), making and selling electricity is only part of Energy Future's raison d'être now.

"This is a utility and its product is electricity that it sells to the public, but it really is a debt house," he told Bloomberg Businessweek. ""There are fees to be made in all that debt management."



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9 comments
Sotiredofitall
Sotiredofitall topcommenter

Sell the utilities, sell the highways, and the state's still short on funds    

Thank you Gov Goodhair

 

Like Kinky said when he was running for Gov :"How hard could it be?"

scottindallas
scottindallas topcommenter

ahhh, yes, the Bain Capital model of finance.  Lard a business with debt, pay yourself a 12 times return on your investment and hide the finances from the next unsuspecting sucker, and blame them for the impending bankruptcy.  That's exactly like Romney and Bush's tax plans.  Only Bush didn't wash his hands quick enough.

Montemalone
Montemalone topcommenter

I am obviously in the wrong business.

ThePosterFormerlyKnownasPaul
ThePosterFormerlyKnownasPaul topcommenter

How's that market deregulation working for you ... ?

 

and now for the obligatory comment ...

 

I'm shocked .... I'm shocked to find out that the Former TXU is over leveraged and underwater; and, the buyout firms have pocketed a lot of money off of this venture ...

MikeWestEast
MikeWestEast

It is an issue for the banks and pension funds that leant TXU the money, full aware of the fee arrangements. The holding company has all the debt with the operating companies, the ones that touch the public, unaffected. The private investors and lenders will get together and decide how much of the company the investors must surrender in exchange of the debt. Hopefully your pension fund did not lend any money. Otherwise, it does not matter to the rest of us.

scottindallas
scottindallas topcommenter

 @ThePosterFormerlyKnownasPaul I'm shocked you seem to think these practices makes Mitt competent to claim he runs a business.  He's the biggest debt queen, and gov't entitlement taker going.  Bankruptcy is a gov't power, why is it that the "capitalists" (sic) are such big fans of big gov't?

scottindallas
scottindallas topcommenter

 @MikeWestEast You're missing how we're being taken.  This is a utility, you're not a customer, you're a consumer.

claytonauger
claytonauger

 @MikeWestEast Nope. They're already robbing from the company "touching" the public too - the one there's supposed to be separated from EFH by a brick wall, but it's really just a sponge. The one that operates power plants, including a nuclear one near us.

ThePosterFormerlyKnownasPaul
ThePosterFormerlyKnownasPaul topcommenter

 @scottindallas Ummm ... Scott ... I didn't say anything about Mitt ... If you will look at my previous posts you will see that I have been a staunch advocate that the electrical market deregulation has been one huge joke and fleecing of the consumer ...

 

Next time, I will issue a sarcasm alert for you ... 8-D

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