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Leveraged buyout folly Energy Future Holdings could restructure as bankruptcy looms

2 Oct 2013

Energy Future Holdings Corp, which was acquired in the world’s biggest leveraged buyout in 2007, may have a gained a lifeline in a bid to avoiding bankruptcy after one of its creditors hired advisers to explore a restructuring plan.

Bond-holder Fidelity Investments has appointed Perella Weinberg Partners and Fried Frank Harris Shriver & Jacobson to seek restructuring options before a $250m bond payment deadline on 1 November, according to Reuters.

The US-based energy utility’s senior creditors including private equity firms Apollo Capital, Centerbridge, and Oaktree Capital, and were previously reported to be seeking bankruptcy before that payment is made to bondholders as their claims are junior to theirs.

That could lead to one of the biggest corporate restructurings in history, which would wipe out the private equity backers and leave debt investors in control, the report said.

KKR, TPG Capital and Goldman Sachs Capital Partners offered to creditors the chance to swap their existing debt in Energy Future Holdings for a combination of debt and equity according to a filing with the US Securities and Exchange Commission.

The company was known as TXU Corp when the trio of firms bought it in a $43.2bn deal at the peak of the buyout boom, loading it with about $35bn of debt in the process.

About 95 per cent of the consortium’s investment in TXU has been written off since the deal, while a regulatory filing last June showed the company’s debt to EBITDA ratio was 9.5 times.

Earlier this year lenders rejected a proposed $32bn debt restructuring plan for being too lenient on the company’s private equity owners.

The trio of private equity firms were also revealed to have paid themselves more than $500m in fees, despite dragging the debt-ridden company towards potential bankruptcy.

Reuters said a deal to avoid bankruptcy is “unlikely” to be resolved, as the deadline looms closer.

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