Sunday, August 12, 2012

Energy Future Holdings PEU Moves

Energy Future Holdings will offer $850 million in debt to pay a $680 million dividend, a liquidity recapitalization in PEU parlance. SEC filings stated:

Energy Future Intermediate Holding Company LLC and EFIH Finance Inc. (collectively, the “Issuers”), both wholly-owned subsidiaries of Energy Future Holdings Corp. (“EFH”), announced today that they have priced a private offering of $250 million principal amount of 6.875% Senior Secured Notes due 2017 (the “First Lien Notes”) and $600 million principal amount of additional 11.750% Senior Secured Second Lien Notes due 2022 (the “New Second Lien Notes”). The offering is expected to close on or about August 14, 2012 (the “Closing Date”), subject to customary closing conditions.

The Issuers intend to use a portion of the net proceeds from the offering to pay a dividend of $680 million to EFH in or before January 2013.  

Energy Future Holdings press release went on the say:

EFH will use the proceeds of the dividend to repay the outstanding balance of the demand notes payable by EFH to its wholly-owned subsidiary Texas Competitive Electric Holdings Company LLC (“TCEH”) that have arisen from cash loaned by TCEH to EFH. Pending such use, such portion of the net proceeds from the offering will be deposited into an escrow account. Holders of the notes will have no security interest in the escrow account. The remaining net proceeds will be used for general corporate purposes, which may include the payment of dividends to EFH
EFH will use 11.75% borrowings to retire credit with a 4.5% interest rate?  EFH's most recent 10-Q stated

At December 31, 2011, outstanding short-term borrowings totaled $774 million, which included $670 million under the TCEH Revolving Credit Facility at a weighted average interest rate of 4.46%.

In addition, short-term borrowings of $670 million under the TCEH Revolving Credit Facility were repaid.

With no short term TCEH credit to be repaid, the $680 million is free to be paid out as dividend to EFH per debt covenants.  Might EFH want to park TCEH cash at the parent?

NYPo believes EFH will put TCEH into bankruptcy soon.   TCEH holds $29 billion of EFH's $36.5 billion in debt. .

The washing of money between subsidiaries rings like Enron.  Enron's Ken Lay had Texas politicians slapping hands for Enron campaign cash and turning their heads away from his company's shady dealings. 

Texas Public Utility Commission raised wholesale energy prices from $3,000 to $4,500 a megawatt-hour, effective August 1.  After this 50% increase, the PUC plans to go to $9,000 per megawatt-hour in 2013.  Ironically, Texas wholesale utility prices are "pegged" to natural gas prices, at historic lows.  Why the complete and total disconnect?  It's like Enron II

Which EFH subsidiary benefits from the 50% increase in electrical wholesale rates that went into effect August 1?  It's Luminant, which owns more than 15,400 megawatts of generation capacity.

Read more here:
How might Energy Future Holdings generate cash under new wholesale pricing? 

TXU Energy, a unit of Energy Future Holdings, and NRG Energy, which owns Reliant and Green Mountain, have argued to the PUC that the change in the wholesale price cap should allow them to break fixed-rate contracts.

EFH debt was downgraded:

Fitch lowered the rating of Energy Future Holdings to CC from CCC, which “implies very high levels of credit risk such that default of some kind appears probable at some point in the future.”
This raises questions as to who would buy EFH's latest $850 million debt offerings?

In another PEU move:

EFH will terminate its pension plan for current employees of TXU Energy, Luminant and EFH who are not union members.  EFH plans to distribute pension plan assets by the end of the year.   

That'll make a Merry Christmas in the Cratchit household.

Cratchit: Tomorrow is Christmas and I was wondering if I could have... Half a day off?
Scrooge: Christmas, eh? Uh, er... I suppose so. But I'll dock you half a day's pay. Let's see, I pay you two shillings a day...
Cratchit: Two shillings and a halfpenny, Sir.
Scrooge: Oh yes, I gave you that raise three years ago.
Cratchit: Yes, sir, when I started doing your laundry.
EFH paid its PEU owners over $100 million in management fees:

We pay an annual management fee under the terms of a management agreement with the Sponsor Group, which we reported in SG&A expense totaling $37 million, $37 million and $36 million for the years ended December 31, 2011, 2010 and 2009.

It's a Scrooge Sponsor PEU world.  EFH's PEU Christmas comes when Texas wholesale electricity rates soar to $9,000 per megawatt-houor.  The rest of us are Cratchits.

Update 12-14-15:  Energy Future Holdings is among the top PEU affiliates in fees paid to their sponsor.  Bleed 'em and weep.