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The announcement that Energy Future Holdings, the biggest generator of electricity in Texas, is going to issue $750 million in debt probably could have been timed better.
Earlier this week, the company announced it was going to terminate the pensions of about a third of its workforce by the end of they year. The week before that, EFH announced a second-quarter loss of $696 million. That was down from a $705 million loss the year before, but it still amounted to an 18 percent decline in revenue.
The $750 million in debt, due by 2017 and 2022, will be used for a few purposes, though none are described in detail in its Securities and Exchange Commission filing. The proceeds are intended to repay an inter-company loan from Texas Competitive Electric Holdings, its retail and generation subsidiary (stay with me here), to the parent company, EFH. Some of it, the release says, will be used to pay dividends to EFH. The rest will go toward some nebulous "general corporate purposes."
EFH, like most of the generators in Texas, has struggled over the last several years with low electricity prices, primarily set by the price of natural gas. But unlike most Texas generators, EFH has $42 billion in merger debt to pay off. When the former TXU was purchased by private equity lenders led by Kohlberg Kravis Roberts, they were betting on the high price of natural gas setting a high price for electricity. The opposite happened, and since then, EFH has sought to refinance debt it can't currently afford to pay and push it further out into the future.