Energy Future Holdings, Texas' Biggest Power Generator, May File for Bankruptcy This Month

Categories: Biz

butt plug.jpg
Peter Ryan
Dallas-based Energy Future Holdings, the electricity giant taken private in the biggest leveraged buyout in history, has been teetering toward bankruptcy for some time. Over-leveraged, with too much debt and not enough revenue in a weak electricity market, sources close to the negotiations tell Bloomberg News that a bankruptcy filing may come sometime this month.

When it arrives, it'll be huge, a bankruptcy on par with General Motors and Chrysler. In terms of sheer debt, it could be the biggest ever.

As soon as next week, terms may be hammered out for a reported $3.5 billion debtor-in-possession loan. It's a lifeline provided by lenders to a company struggling through bankruptcy. The cash infusion allows it to continue to operate as a functioning business. In exchange, the lenders get first dibs as senior EFH debt holders, meaning they get paid, with interest, before anyone else. It means another thing, too: The power plants keep running and the lights don't go out.

No word yet on what a restructuring will look like. Back in April, EFH's creditors roundly rejected a deal to restructure $32 billion in debt owed by the holding company that includes Luminant, EFH's generating arm. In exchange for a stake in the company, they were to forgive the debt and supply a loan. Senior creditors are apparently in New York this week, trying to hash out a deal.

We detailed EFH's woes in a 2012 cover story. Private equity firm KKR and Goldman Sachs took the former TXU private in 2007, betting that the price of natural gas would stay high, setting a high marginal price for electricity. With a fleet of coal-burning power plants generating electricity at low cost, TXU's new owners weren't too worried about the billions of dollars in debt they'd loaded the renamed EFH with. But commodities, they do fluctuate. The price of natural gas -- and electricity with it -- went down and stayed down. Before long, EFH was spending 60 cents of every dollar it took in on interest. The quarterly losses piled up, and it's now worth much less than it owes.

Things have gotten so bad that it has shut down units at two of its coal-fired plants, because running them means losing money. Here's hoping a restructured EFH comes out of this with a debt load it can actually handle in this electricity market.

My Voice Nation Help
31 comments
bvckvs
bvckvs topcommenter

Republican deadbeats keep betting that prices will always go up and never go down.  Then when the inevitable happens, they demand that taxpayers and creditors give them a break - insisting that nobody could have predicted that which everyone predicted.

I say, let them fail.

Ashley192361984
Ashley192361984

<!--my co-worker's mother-in-law makes $82 hourly on the internet. She has been fired from work for 7 months but last month her pay was $20345 just working on the internet for a few hours. go to this web-site................Buzz55.ℭom-->

J_A_
J_A_

Blast that cursed picture!

James080
James080 topcommenter

The whole buy-out of TXU was set up as a kill shot for a few TXU insiders, with the total cooperation of the PUC and the Perry cabal running this state, they cashed out nicely with no regulatory fuss and no long term ties to the carcass. Bankruptcy was always the likely exit strategy. What the nimrods at KKR didn't grasp was that fracking was going to unleash an enormous new source of natural gas, and that therefore price of gas would plummet before they could gouge Texas consumers.  I read KKR has already written off their entire investment in EFH, so it's only junk bond holders and unsecured investors left on the hook. In BK, the court should seriously look at breaking up the company into smaller, competitive units.

TheCredibleHulk
TheCredibleHulk topcommenter

What really kills me about this deal is this. Aren't these KKR and GS investors supposedly the smartest guys in the room? How could they not have foreseen the glut of NG that would be flooding the market in the near future when they were planning that buyout of EFH? 

scottindallas
scottindallas topcommenter

@bvckvs we can't let the energy supply fail, regardless the ownership structure, that's our system.  Liberals need to understand markets as well as conservatives, but they're just as lazy.  Utilities markets are different than free markets (gov't typically regulates these markets, and stays out of free markets.  Liberals need to know this too.  Liberals need to know the limits of gov't.  And, if you knew this distinction, your comment wouldn't contain this confusion.  I don't want to support this failed management, but the system is ours, and we need it, lest you're still debating whether or not you want electricity.  I think there's cause for the Gov/State of Texas to seize this firm and it's assets for the public well-being; or there certainly will be such cause once bankruptcy is filed.  We'll see, sadly, the costs will all be borne by us, the tax payers and rate payers under the Texas grid.

 

scottindallas
scottindallas topcommenter

@James080 EFH has made money, it's the parent company that drained all the profits out.  I hope, James you will take up my argument that there are not just free markets, but that utilities markets must be treated differently. 
 I don't dispute the thrust of what you wrote, I hope you'll carry a more nuanced view of gov't/economics going forward

scottindallas
scottindallas topcommenter

@TheCredibleHulk THEY WON, the firm is but a casualty, a name plate.  They paid themselves off richly.  Romney hasn't turned many firms around either.  He was able to fluff them up, and get out before they collapsed.  That's what these guys do. 

ThePosterFormerlyKnownasPaul
ThePosterFormerlyKnownasPaul topcommenter

@TheCredibleHulk

How could they not have foreseen the glut of NG that would be flooding the market in the near future when they were planning that buyout of EFH? "

One word: greed ...

holmantx
holmantx topcommenter

@TheCredibleHulk 

They are counting on the regulatory agencies to force the price back up and keep it there.

bvckvs
bvckvs topcommenter

@scottindallas @bvckvs

We've all heard the Republicans' "too big to fail" argument before.

Appealing to cowardice and ignorance by Insisting that the failure of this one corporation will cause the energy supply to fail is not a reasoned argument - so it will only work on Republicans.

If you honestly want to convince liberals to go along with it, you'll have to use a more reasoned and less emotional argument..

TheCredibleHulk
TheCredibleHulk topcommenter

@scottindallas @TheCredibleHulk 

You're right, of course. What was I thinking.

You'd think that sooner or later that taxpayers would get tired of stalking through the wreckage these "geniuses" have wrought, picking up the pieces of our broken lives and institutions.

Alas, no. We are nothing, if not suckers for a good snake-oil salesman.

scottindallas
scottindallas topcommenter

@holmantx @TheCredibleHulk They don't care.  They got their salaries, they stripped the firm of assets, bk is all that was left.  This is Romney's MO, and you want to talk about his acumen

thxthx
thxthx

@imho @thxthx @scottindallas @bvckvs

Buffett doesn't own AEP at all.  Berkshire Hathaway's electricity division has a SMALL joint venture with AEP on a transmission line --- that cost just $70 million.

http://www.ettexas.com/about/

Which one is more important?  Buying a $30 billion power company at a bankruptcy auction for $20 billion or a $70 million joint venture project.

imho
imho

@thxthx @imho @scottindallas @bvckvs He already owns the utility AEP, I doubt he'd mess with EFH, although it'd be good if he did, cuz he's a good businessman and he and AEP are fairly pro renewables, which I personally like.

thxthx
thxthx

@imho @thxthx @scottindallas @bvckvs 

The "politics" come from the conservatives hating Buffett's tax policies and blasting him as old and out of touch.  But the fact is that Buffett is getting absolutely better with age.


Buffett is going to swallow up the whole TXU at a huge discount in a bankruptcy auction --- and the barbarians at the gate can't do anything to stop him.

thxthx
thxthx

@imho @thxthx @scottindallas @bvckvs 

Buffett doesn't care about the $2 billion he spent in the TXU bonds if he can pick up the whole TXU (with $30 billion worth of power stations) for $20 billion in a bankruptcy auction.

Even if he lost the whole $2 billion in TXU junk bonds, he would make $8 billion by swallowing up the whole TXU.

imho
imho

@thxthx @scottindallas @bvckvs Ummm, he said he bought the bonds at 90 and they're now at 70. That was more than a 20% loss three years ago, long before things got as dire as they are now. So his 10.5% annual yield is surely not making up for his loss as this point. Also, it's not a political issue, other than the point that the large banks and funds have considerable political sway (although that obviously didn't save them is this instance) and TX energy markets are deregulated rather than some sort of government controlled entity as some folks seem to insinuate. 

bvckvs
bvckvs topcommenter

@scottindallas 

It's not that we haven't articulated government's limits, it's just that you're not bright enough to understand that we did so, or not honest enough to admit it.

scottindallas
scottindallas topcommenter

Just as most of us here, left and right would agree that many gov't prohibitions are overreaching, be it drugs, prostitution, gambling, guns, gay marriage or abortion.  I'm for all of them.  We have to develop and articulate a paradigm that describes where we'd like gov't to enter and where to be limited.   Please consider my thoughts, and read my other posts, I'm in many ways the most liberal voice here, and in some ways among the most cynical.  And, surprisingly, one of the most conventional, if it be a convention that most have forgotten.  (I have a civil atty as a father, and a Fortune 100 exec president for a grandfather.)


scottindallas
scottindallas topcommenter

@bvckvs @scottindallas Man, the ignorance is strong in you.  The problem was in ever allowing these utilities unbridled profits, banks ARE too big to fail.  Throw the execs in jail, besmirch their names, the infrastructure of electricity is ESSENTIAL.  What's been drained isn't one of the customer service fronts that pass for "competition"  but the literal core of our electric utility.  

Good god, I have to say this to conservatives, and I have to say it to you, simple answers don't work in the real world.  Wholly socializing utility markets won't fix their problems, nor will privatizing them.  You've bought the privatization argument, for a utility then think you can shrug it off.  That's like saying, "screw it, I don't need running water, let em go bankrupt."  That means precious resources get absconded, wasted on lawyers, and a bunch of other directions other than providing that utility.  

Utilities ARE too essential to fail.  FDIC should have taken the banks over, though I think they lacked the manpower to do so during the crisis.  They didn't have the money, but I'd rather the Fed give that money to the FDIC rather than the execs, we're in accord on that one.  The argument is more nuanced than you've allowed in your arguments.  That's a bludgeon I usually wield against conservative arguments, but I'm, perhaps the last man advocating real capitalism and not some financialized shadow there of. 


Now Trending

From the Vault

 

General

Loading...