Dallas-based Energy Future Holdings, the electricity giant taken private in the biggest leveraged buyout in history, has been teetering toward bankruptcy for some time. Over-leveraged, with too much debt and not enough revenue in a weak electricity market, sources close to the negotiations tell Bloomberg News that a bankruptcy filing may come sometime this month.
When it arrives, it'll be huge, a bankruptcy on par with General Motors and Chrysler. In terms of sheer debt, it could be the biggest ever.
As soon as next week, terms may be hammered out for a reported $3.5 billion debtor-in-possession loan. It's a lifeline provided by lenders to a company struggling through bankruptcy. The cash infusion allows it to continue to operate as a functioning business. In exchange, the lenders get first dibs as senior EFH debt holders, meaning they get paid, with interest, before anyone else. It means another thing, too: The power plants keep running and the lights don't go out.
No word yet on what a restructuring will look like. Back in April, EFH's creditors roundly rejected a deal to restructure $32 billion in debt owed by the holding company that includes Luminant, EFH's generating arm. In exchange for a stake in the company, they were to forgive the debt and supply a loan. Senior creditors are apparently in New York this week, trying to hash out a deal.
We detailed EFH's woes in a 2012 cover story. Private equity firm KKR and Goldman Sachs took the former TXU private in 2007, betting that the price of natural gas would stay high, setting a high marginal price for electricity. With a fleet of coal-burning power plants generating electricity at low cost, TXU's new owners weren't too worried about the billions of dollars in debt they'd loaded the renamed EFH with. But commodities, they do fluctuate. The price of natural gas -- and electricity with it -- went down and stayed down. Before long, EFH was spending 60 cents of every dollar it took in on interest. The quarterly losses piled up, and it's now worth much less than it owes.
Things have gotten so bad that it has shut down units at two of its coal-fired plants, because running them means losing money. Here's hoping a restructured EFH comes out of this with a debt load it can actually handle in this electricity market.