Wednesday, April 30, 2014

Energy Future Holdings Goes from PEU to PEU

Energy Future Holdings, formerly TXU and the largest private equity deal in history, finally imploded under the weight of nearly $40 billion in debt.  Major losers include EFH's original debt holders as well as KKR, Goldman Sachs Capital Partners and TPG's investors. 

Ironically, PEU's like Apollo, Oaktree and Centerbridge purchased deeply discounted EFH debt and will be the company's new owners.  After the 2007 financial crisis this became a viable PEU acquisition method.  The Carlyle Group back doored Brintons and Mrs. Fields via discounted debt holdings.

Energy Future Holdings prepackaged bankruptcy comes as legendary Texas heat prepares to return.

They announced the deal one month before the maximum price cap rises to $7,000 per megawatt hour, as approved by the Texas Public Utility Commission.  This is up from $3,000 per megawatt hour in 2012.  The cap rises to $9,000 per megawatt hour on June 1, 2015.  That's a 66% increase in the cap in just three years.

Should power get out of balance the next two summers, electrical generators could make huge money.  It'll be a different PEU triumvirate looking to profit big from EFH.  The question is how much Texas citizens will pay so billionaires can become kajillionaires.

Update 5-25-14:  Carlyle's Claren Road bought EFH debt on the cheap, looking for a quick payoff.  Claren is challenging typical PEU moves regarding asset transfers and management fees.