EFH reportedly hires firms to help with debt restructuring
By WILL DEENER
Energy Future Holdings Corp., the state’s largest electricity producer, is almost certain to record another quarterly loss when it releases its earnings next week.
What is not so certain is when the Dallas-based utility will announce a much-anticipated debt restructuring or perhaps bankruptcy filing.
Analysts who follow this debt-laden behemoth had been predicting the company might delay restructuring a sizable portion of its long-term debt until 2014.
However, earlier this week it was reported in the financial press that EFH has already hired restructuring attorneys at Kirkland & Ellis LLP and bankers at Blackstone Group LP to lay the groundwork for restructuring.
“Until that happened the market was expecting a restructuring sometime in 2014, but now with the hiring of counsel it’s tough to say,” said Andy DeVries, an analyst at CreditSights. “Absolutely, the company will have to restructure. There is no way around that.”
EFH, formerly TXU Corp., was purchased in 2007 by three buyout firms, Kohlberg Kravis Roberts & Co., TPG and the private equity arm of Goldman Sachs Group. Since then it has struggled to pay down the $37.4 billion debt that was piled on the company to buy TXU’s outstanding shares.
About $30 billion of that debt is on the books of the EFH subsidiary — Texas Competitive Electric Holdings Company — that owns TXU, the energy retailer, and Luminant, the power generation segment.
In recent months, EFH has transferred debt from the parent company to some of its subsidiaries. This is significant because DeVries and other analysts believe the company is trying to protect the parent and other profitable parts of the company from being pulled into bankruptcy.
“They are setting this up for a restructuring of TCEH,” DeVries said. “TCEH is the segment that is not going to make it, so you don’t want the TCEH bond holders to claw the parent into bankruptcy.”
He estimates there is now only about $400 million to $500 million in debt left at the parent level.
EFH spokesman Allan Koenig on Friday would not confirm the hiring of outside counsel, which was first reported by the Financial Times and The Wall Street Journal.
“We have continued to evaluate various alternatives to address our capital structure,” he wrote in an email response to questions. “We have worked with a number of outside parties from time to time to advise us on these types of matters.”
The situation at TCEH is dire, and hardly a month goes by that the company doesn’t extend debt maturities to try to buy some time. Last month, it extended a $645 million revolving credit line due in October 2013 to 2016. To get lenders to agree it had to offer a 52 percent fee in the form of a new loan.
An interesting sidelight to all this is that billionaire Warren Buffett invested $2 billion in this buyout venture in 2007. He has since essentially written off the investment with little hope of recouping anything.
In a preliminary filing last month, EFH reported it expects a $2.17 billion net loss in 2012 on top of a $1.91 billion loss in 2011. The company has positive cash flow, but annual interest payments topping almost $3 billion obliterate any chance of profitability.