Reuters reported:
U.S. private equity firm Blackstone in 2016 unplugged a Texas power plant that it owned from the state's grid in a bet that it could make a fortune as the only American-based generator selling electricity exclusively to Mexico.
That bet has gone south.
Nearly five years later, Blackstone's gas-fired plant, Frontera Holdings LLC, is struggling to exit bankruptcy after burning investors holding nearly $1 billion of its debt - the victim of a succession of problems ranging from a power market collapse in Mexico in 2020 to last month's severe cold snap.
Frontera filed for bankruptcy protection last month in Houston, extinguishing loans and notes held by U.S. hedge funds, mutual funds, pensions and private equity firms, according to U.S. regulatory filings.
Recently Blackstone CEO Stephen Schwarzman's income was revealed:
Blackstone Group Inc Chief Executive Stephen Schwarzman pocketed at least $610.5 million in 2020 from dividends and compensation, more than any other private equity executive and up 20% from last year despite the impact of the COVID-19 pandemic, regulatory filings showed.
Schwarzman was not alone. His fellow private equity underwriters had a banner year.
Private equity executives who rank among the richest men on Wall Street received hundreds of millions of dollars in payouts even as the US economy faltered last year, helped by central bank stimulus that wiped out the investment losses they recorded early in the pandemic.
Former PEU Jay Powell runs the U.S. Federal Reserve Bank and has multiple PEU assistants.
Back to Blackstone's Mexican power failure:
The plant, for example, generated about $87 million in profit on nearly $200 million of revenue in 2019, according to disclosures in U.S. Bankruptcy Court in Houston.
That year, Blackstone paid itself a dividend of about $116 million, following a similar payout of $120 million the previous year, from operating cash and incremental debt, court disclosures show.
Blackstone sucked $236 million from Frontera while increasing its debt load. It took one event to send the company under.
This story is not new. The Carlyle Group did that exact thing with Philadelphia Energy Solutions. Elected officials gave Carlyle's PES public tax money. There were no legislative consequences for the politically connected PEU post PES bankruptcy after a huge explosion.
The judiciary may provide justice to those injured by greed. Corporate boards selling to PEU's could be liable for fraudulent corporate transfer. A Directors and Officers' litigation case involving Nine West, Jones Group and PEU Sycamore Partners will go forward.
The case "highlights the risks faced by directors and officers of companies in financial distress who fail to undertake properly their duties to the company and its stakeholders."
Nine West's capital structure under Sycamore is a litigation issue.
How might any decision apply to directors and officers who approve debt funded dividends to parent PEUs that send the affiliate into bankruptcy, while enriching billionaire PEU founders like Stephen Schwarzman and David Rubenstein? It remains to be seen.
