May 2, 2012 DonnyE

TXU Parent Gets Burned Again!

Energy Future Holdings is the Dallas based company that controls TXU and if you remember was the entity purchased in the largest leveraged private equity buyout in U.S. history. The Energy Future Holdings private equity buyout now ranks as the number 2 biggest ever as RJR Nabisco beat them out. The deal was a cool $44.37 billion to buy up Energy Future Holdings by buyers KKR, TPG, and Goldman Sachs.

The former secretary of the state was appointed to run this big massive company and now facing a 5th consecutive quarterly loss I start to wonder about the too big to fail concept. Is this loan guaranteed by the government in one way or another. How does this get handled if government has to step in?

I kind of doubt these companies would get into this buyout if there weren’t some pretty strong guarantees in place for this leveraged loan.
Being burdened by all this debt Fitch Ratings downgraded Energy Future Holdings’ debt to 8 levels below junk and said a default is very likely a possibility.

The company faces increasing troubles in trying to generate cash and their debt is only going up along with their interest payments. Sales fell 27% to $1.22 billion in the first quarter and interest expenses increased 22% to $785 million from a year earlier.

I wonder who has a protective stake in this buyout and what investors will end up being screwed? The report seemed to blame falling power prices on EFH’s downfall so far. I wonder if the problem has anything to do with the EPA and environmental activists that stopped all those state of the art coal power plants that were expected to be built by TXU?

Power generation is a big part of the EFH business. Their retail side, TXU, sells retail electricity service but this is a carefully balanced business that has other worries unrelated to the generation side of the business.

Trying to keep this big company going with all the government regulation and competitive deregulated market in Texas seems like a huge undertaking and add to that the pressure of all that debt.

I see this as a long uphill climb into positive territory.

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About the Author

DonnyE Donny owns Electricitybid.com and started the website back in 2007 to help energy consumers in Texas and the U.S. shop for electric rates from multiple vetted electric companies. In his spare time he enjoys wrestling with his 6 year old son, 3 year old son and our new 20 month old son. He also likes softball, kickboxing, and doing fun excursions and activities with his wife Melody.

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