Is EFH Corp. Going Bankrupt? This is TXU Energy’s Parent Company

bankruptThe Wallstreet Journal has reported that Energy Futures Holdings, the parent company of TXU Energy has hired a restructuring law firm called Kirkland & Ellis LLP.

A few years ago TXU Energy’s parent company Energy Futures Holdings was bought in the largest leveraged private equity buyout in U.S. history. This simply means that the private investors bought EFH with very little of their own money through a margin bet.

So basically with all this debt and 4 billion dollars in interest payments coming due TXU’s parent company has hired a restructuring law firm to help them decide what the next move should be.

I have written a few articles in the past that detailed how TXU’s parent company had lost billions of dollars in different operating quarters and it seemed from this that the handwriting was on the wall as far as their demise.

So with a company worth over 40 billion dollars that owns quite a few electricity generation facilities and much of the retail electricity business in Texas what is to happen with the Texas retail electric customer of theirs?

Fortunately the electricity will keep on getting traded and sold and the generation facilities will remain on because if a restructuring happens it simply means TXU will not have to pay their debtors.

Some investors and some companies will lose out on a restructuring deal but when it is all said and done TXU will still have most of their generating assets or may sell them to a competent player in the market and retail electricity will be sold as usual.

We have had opportunity to possibly use TXU and the other big guy Reliant on our comparison website to offer to our customers but we have declined to ever put them on here.

I personally was not the responsible party for declining to put them on our website but a big part of the reason I think was simply that both companies have routinely offered very expensive prices compared to the choices we offer.

Customers that signed up with TXU or Reliant were interested in the brand and many could care less that they might be paying 15 % or more for their electric service.

I even had a very close friend who signed up with one of these big guys and she knew she was paying about 3 cents per kilowatt hour more than the providers on our website but her excuse was simply that she was familiar with TXU and Reliant but had not heard of the brands on our website.

Even though you have brand loyal customers out there like my friend there were a multitude of customers that chose to churn away from TXU Energy because of the high prices.

I can only speculate that the reason for the hiring of a restructuring law firm has something to do with the long wait to finally join in on the idea of lowering electricity prices for their customers.

A discount price for electric service has worked for many retail companies in the Texas electricity market so it always perplexed me why TXU kept their prices as high as they did for so long.

In summary the recently new brand TXU’s parent company developed for the purpose of advertising a low price and to give to charity seemed like a shot in the right direction. They created a new brand called http://www.4changeenergy.com/ and the prices on the site look cheaper than TXU’s own prices.

As of today TXU offers a 9.4 cent per kilowatt hour rate online which is okay but not the lowest 12 month rate by any stretch of the imagination.

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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