Bloomberg Law reported on the bankruptcy of Talen Energy, an affiliate of Riverstone.
...when (natural gas) prices spiked in recent months, Talen was “exposed to market price volatility” restructuring adviser Ryan Omohundro said in court papers.
Talen’s strategy of using derivatives to manage commodity and power market volatility backfired when power and natural gas prices spiked last year, according to the filing. The hedges forced the company to post more cash collateral for its counterparties, sparking a “significant liquidity squeeze,” Omohundro said.
“These liquidity requirements were much greater than the (company) could have anticipated or were capable of financing,” he said.
Derivatives sank a power generation company, one put together and managed by financial masters of the universe.
The Carlyle Group contributed several companies to what became Talen Energy in 2016. Carlyle is a former joint venture partner with Riverstone in the energy arena.
Consider who Riverstone charged with running Talen after the buyout.
Talen's new CFO has a background in investment banking. Hernandez began his career with energy marketing company Enron, moving to Wells Fargo before landing at Goldman Sachs in 2004, where he led its utilities and power generation coverage.Talen's bankruptcy/financial reorganization press release made to mention of derivatives gone bad.
It also made no mention of Riverstone's siphoning cash from Talen and how that could have contributed to a lack of liquidity. A Delaware Law Update stated:
In 2016, Riverstone and Talen engaged in a going private transaction pursuant to which Riverstone acquired the shares of Talen’s capital stock that it did not already own. One year later, Riverstone caused Talen to distribute a $500 million special cash dividend to Riverstone. In 2018, Riverstone informed PPL that it intended to cause Talen to declare an additional $500 million dividend and that it would seek to hold PPL liable for its 2014 distribution of Sale proceeds because Talen Montana had been insolvent since that time.
It's not clear how much cash Riverstone pumped from Talen over the last four years.
Interestingly Carlyle industry advisor Gary Wojtaszek was appointed to Talen Energy's board in early April as an independent member. It's not clear if Carlyle is one of the consenting note holders who got equity via the back door.
Fun Facts: Carlyle and Riverstone share a settlement with the State of New York for "pay to play" activities regarding NY pension funds. Also, they have a history of bankrupting SemGroup from over $3 billion in bad energy bets.
Update 5-12-22: FT reported:
The Carlyle Group is merging its energy and infrastructure investment operations as it prepares a renewed push into businesses including fossil fuels. The move comes as strong global demand and the prospect of curtailed oil and natural gas flows from Russia drive up energy prices. Carlyle chief executive Kewsong Lee highlighted investment in liquefied natural gas export facilities and pipelines as particular areas of opportunity for the Washington-based private equity group.There was no mention of Carlyle's abandoning the Corpus Christi Harbor Island project as lead developer. Carlyle fundraised off that project before walking away and not stating a reason.
