| March 28
March 28 Leading Texas power company Energy
Future Holdings is widely expected to file for bankruptcy in the
coming days, the victim of a record-breaking buyout that piled
it with debt just as prices for its electricity plunged.
The former TXU Corp owes more than $40 billion, and if a
deal cannot be struck with creditors by the end of Monday, the
owner of 14 power plants is expected to file one of the biggest
Chapter 11 bankruptcies in history soon afterward.
The bankruptcy could touch off years of expensive
court-supervised negotiations with funds such as Apollo Global
Management, which specialize in profiting from bankruptcy
work-outs, and traditional money managers such as Fidelity
Ultimately, Energy Future's businesses are likely to be
broken up and transferred to the hands of its creditors, people
close to the matter have told Reuters.
The company's generation business, Luminant, and regulated
distribution unit, Oncor, both rank among the largest in the
Many coal-fired power plants have struggled in recent years
as the economics of electricity generation changed. New drilling
technology set off a domestic energy boom, reducing natural gas
prices and eroding coal's cost advantage. Falling gas prices
have in turn depressed prices for wholesale power, forcing
generators like Edison Mission Energy of Santa Ana, California,
to file for bankruptcy. (For a list of the largest U.S. power
generators, see )
Consumers are not expected to suffer power disruptions, and
EFH might be the last in a string of big bankruptcies that have
hit the energy sector over the past decade. Most of its
competitors carry less debt.
Energy Future's bankruptcy hinges on the anticipated opinion
of its auditor in a regulatory filing due Monday that it could
not continue as a going concern. The conclusion would trigger a
default on loans, although the filing could be delayed depending
on whether a grace period is triggered.
An EFH spokesman declined to comment.
The company said in its most recent regulatory filing it had
$38.7 billion in assets and $50.2 billion in liabilities. If it
were to file for bankruptcy, it would be the 10th largest in
U.S. history, according to Bankruptcydata.com.
The company's anticipated collapse is a rare black eye for
private equity firm KKR & Co, which led the $45 billion
buyout in 2007 along with Goldman Sachs Group Inc's
private equity arm and TPG Capital Management. The
firm's investment in EFH is likely to be wiped out.
EFH was created at the end of what has been called a "golden
era" for private equity, a period from 2006 to mid-2007 when
lenders eagerly financed many of history's largest LBOs. The
buyout of TXU, completed in October 2007, was the biggest.
BREAK-UP AND TAXES
With capacity of 15,400 megawatts, Energy Future Holdings is
the biggest power generator in Texas and one of the top 20 in
the United States.
It has eight natural gas plants, five coal plants and one
nuclear plant, primarily across Northeast Texas. It also
operates the largest transmission and distribution network in
Texas, serving the northern third of the state.
When the new owners took the company private in October
2007, they changed its name to Energy Future Holdings - and
saddled the company with about $40 billion in debt.
Shortly thereafter, the economic recession and the use of
hydraulic fracturing, or fracking, to tap hard-to-reach sources
of energy lowered prices for natural gas and wholesale power,
making it difficult for EFH to service its debt.
Last April, Energy Future revealed it had hired law firm
Kirkland & Ellis to advise on its restructuring options, saying
it could face a bankruptcy filing, liquidation or insolvency.
Among key obstacles hindering the talks was a dispute over
how to structure a breakup of Energy Future. According to people
close to the matter, the Apollo-led investor group wanted to
take control of Energy Future's unregulated power merchant
business in a way that would allow it to save money in future
However, such a move would create a massive capital gains
tax owed by the Energy Future estate to the Internal Revenue
Service. People close to the matter estimated it could be as
high as $8 billion and reduce the amount of money available for
unsecured creditors, who are among the last to be paid.
(Editing by Tom Hals, Douglas Royalty, Terry Wade and Tom