Energy Future plan may wipe out owners
Reorganisation talks continue over fate of power company bought in biggest-ever leveraged buyout
KKR, TPG Capital and Goldman Sachs Capital Partners, the firms that acquired Energy Future Holdings in the biggest-ever leveraged buyout, would be all but wiped out in a reorganisation plan being discussed, said three people with direct knowledge of the negotiations.
The firms may accept as little as 1 per cent of the equity in the company after it completes a Chapter 11 restructuring, said the people, who asked not to be identified because the talks are private. The pre-bankruptcy plan is being negotiated by the private-equity owners, the company's management and holders of the power producer's US$45.6 billion of debt.
Energy Future is hashing out a proposal that would reduce the amount of time it takes to restructure in Chapter 11 and limit the chaos of a free-for-all filing. Fidelity Investments, which is a key debtholder throughout the Dallas-based company's capital structure and had been a holdout on the bankruptcy road map, moved closer last week to an accord.
Adam McGill, a spokesman for Energy Future, declined to comment, as did Tom Johnson, a spokesman for the private-equity sponsors at Abernathy MacGregor Group. The proposal, which may still fall through, would also give full legal releases to KKR, TPG and Goldman Sachs, the people said. The private-equity firms as well as a group of unsecured creditors at the regulated Energy Future Intermediate Holding division, agreed to the current deal being discussed, according to one of the sources.
Last year, the sponsors said they would support a restructuring proposal that would have allowed them to retain 15 per cent of the company's equity interest, according to an April 15 filing with the US Securities and Exchange Commission. That plan was rejected. The power producer's acquisition at the peak of the buyout boom in 2007 was essentially a bet, using US$40.1 billion of debt, that natural gas prices would rise. Instead, prices have fallen 69 per cent since July 2008. Gas prices set the cost of electricity in the Texas market.
Energy Future earned US$5 million in the third quarter of 2013, its first net income since the fourth quarter of 2010, according to data compiled by Bloomberg. Total liabilities were US$50.2 billion as of September 30, compared with total assets of US$38.7 billion.