Audio By Carbonatix
The fount of red ink spilling onto the pages of beleaguered power generator Energy Future Holdings’ quarterly reports continues unabated. The Dallas company logged $3.36 billion in net losses for 2012.
In its last quarter alone, the company reported a $1.95 billion net loss, due largely to a write-down on the plunging value of its coal-fired power plants. Low natural gas prices — most often setting the price of electricity in Texas — have eroded the profit margin for coal plants. That’s a headache for any utility. But Energy Future isn’t just any utility. The largest in Texas, it was taken private in a highly leveraged purchase — the biggest in history — by the financiers who took over the ill-fated RJR Nabisco in ’88.
The interest on $40 billion in debt is steep, as you can imagine, So, there isn’t a lot of wiggle room when revenues fall and, according to the recent U.S. Securities and Exchange Commission filing, the company is paying roughly $0.62 of every dollar just to cover interest.
That’s why, further up in the filing, the company seems to be fretting about defaulting on its debt. Part of its debt covenants requires that it maintain a certain level of earnings relative to its operating expenses. If Energy Future slips below that ratio, it could trigger a default within some of its debt agreements, prompting a cascade of other bondholders to demand their money immediately.
This is the scenario that must keep Energy Future’s money-men up at night.
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Says the filing: “If lenders or noteholders accelerate the repayment of all borrowings, we would likely not have sufficient assets and funds to repay those borrowings. Such occurrence could result in EFH Corp. and/or its applicable subsidiary going into bankruptcy, liquidation or insolvency.”
Of course, financial analysts believe one of the company’s tanking subsidiaries, which holds power generator Luminant and the lion’s share of the debt, is headed for bankruptcy within the year anyway. Energy Future has already tapped some high-powered restructuring advisers. If the company heads into Chapter 11, it’ll be one of the biggest we’ve ever seen.
