Like A Vampire, Wall Street Will Drain TXU Until There's Nothing Left

At least for now, Dallas-based electricity and transmission giant Energy Future Holdings, the former TXU, is paying off its debts. Technically, it's completely insolvent, but that hasn't stopped the Wall Street firms who purchased the company in the biggest leveraged buyout in history from extracting hundreds of millions of dollars in fees.

Bloomberg Businessweek paints a dire portrait of greed and impending collapse in a recent story. Energy Future's total liabilities, it reports, come to more than $52 billion. It's only worth $44 billion. With quarterly loss after quarterly loss, Moody's has characterized the company as "unsustainable," marching inexorably toward bankruptcy, Worry not, though. KKR & Co., TPG Capital and Goldman Sachs are still making money. They've paid themselves $528.3 million in fees, even as Energy Future toes the brink of insolvency. According to Bloomberg, the management fees these firms charge are 25 times greater than average.

When they bought the company with a lot of borrowed money, leveraged right up to the hilt in 2008, they saddled Energy Future with all that debt. It looked like it would work out for a little while. Its fleet of coal-fired plants were raking it in as the going price for electricity rose with the price of natural gas. Then the bottom dropped out. Natural gas glutted the market, and the recession cut demand off at the knees. Suddenly, all that debt became a lot less manageable when the profit margins evaporated. So, the company has had to borrow more and more, in order to make ridiculous interest payments, and to pay the Wall Street guys.

Says Tom Sanzillo, former deputy comptroller for New York, and the finance director for the Institute for Energy Economics and Financial Analysis (who was also a great help as we researched a feature story on the subject), making and selling electricity is only part of Energy Future's raison d'être now.

"This is a utility and its product is electricity that it sells to the public, but it really is a debt house," he told Bloomberg Businessweek. ""There are fees to be made in all that debt management."

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Brantley Hargrove