Big haircut proposed for Energy Future backers KKR, TPG, Goldman

  • Bankruptcy talks stall on history’s largest buyout
  • Texas utility discloses latest round of proposals
  • $250 million in interest payments due Nov. 1

The buyout firms backing Energy Future Holdings Corp, which collectively own 98 percent of the Texas electric and gas utility, could end up with just 2 percent of the equity under terms of a creditor’s proposal disclosed in a regulatory filing by the company formerly known as TXU. The disclosure came as Energy Future Holdings struggles to negotiate a prepackaged Chapter 11 bankruptcy.

The sponsor group — Kohlberg Kravis Roberts & Co, TPG Capital and Goldman Sachs Group Inc’s private equity arm GS Capital Partners — paid around $45 billion for TXU in October 2007, at the peak of the mid-decade buyout boom. But the economic recession that followed, and the collapse of natural gas prices as new sources came online, left the company saddled with debt that it has struggled to repay. The sponsor group is said to have been seeking a 15 percent stake in the reorganized company.

Energy Future Holdings proposed a plan in April to restructure $32 billion of its debt through a prepackaged bankruptcy, but senior secured lenders including Oaktree Capital Management and Apollo Global Management have rejected the initial plan, as sister service Thomson Reuters Loan Pricing Corp. reported at the time.

Energy Future Holdings disclosed new proposals earlier this month. One of those proposals, prepared by financial advisory firm Perella Weinberg Partners on behalf of a party identified only as a “[Significant Creditor]” in the document, offered the sponsor group a 2 percent stake in Texas Competitive Electric Holdings Co, which competes in the unregulated energy market, as well as a 2 percent ownership in a tracking stock for Energy Future Intermediate Holding Co, which operates the regulated utility unit known as Oncor. That regulated arm of the company would not be part of any contemplated bankruptcy.

Under the Perella Weinberg proposal, holders of Energy Future’s senior debt would own more than 94 percent of the post-reorganization company.

Two other proposals, put forth by creditors of Texas Competitive Electric Holdings and Energy Future Intermediate Holding, were less specific, although the Texas Competitive Electric Holdings proposal would provide $800 million in cash for the sponsors to divide with the parent company’s unsecured creditors.

A spokesman for the sponsor group declined comment.

Creditors are seeking to negotiate the bankruptcy deal before Nov. 1, when $250 million in bond payments are due, but no consensus has emerged around any of the proposals. Sister news service Reuters reported that at least some of the creditors, unsecured bondholders of Energy Future Intermediate Holding, have walked out of the talks.

An agreement before Nov. 1 would allow Energy Future Holdings to file bankruptcy and suspend the bond payments, with a relatively quick exit from the bankruptcy court’s supervision, but to file Chapter 11 without a deal with creditors could lead to years of wrangling in court, Reuters wrote.