Energy Future Holdings proposes bail-out plan

PUBLISHED BY
Carrie Ann



TAGS:


8 years ago




Energy Future Holdings has its bankruptcy package

Energy Future Holdings has its bankruptcy package

In 2007 when TXU was privatized, Energy Future Holdings was formed at a cost of $45 billion in buyout. Cutting to Circa 2013, Energy Future Holdings has proposed a bankruptcy package to its creditors. With over $32 billion debt, which seems to be only the tip of the bailout-iceberg, the path is tough and long for Energy Future Holdings.

Energy Future Holdings is already considered to be in ‘a state of insolvency’ because the creditors. The senior debt trading falls below 100 cents on the dollar, while assets are less than liabilities. Therefore the debtors are expected to drive a harder bargain on the negotiating table.

Energy Future Holdings debts woes – How they came about

TXU was divested when Goldman, KKR and TPG placed a value of $48 billion on their acquisition. Nearly $40 billion was raised as debt. Additionally, the drop in natural gas prices (a factor that was the primary determinant while buying into the firm) has resulted in poor performance and drop in cash flow. The trio apparently looked at price hedge until 2015 for natural gas and once the hedge expires, the company spiraled into a downfall.

Talks held with its secured debtors, who control the power-generation arm of the business, in February failed. Energy Future Holdings was unable to broker a deal with this group largely because of reasons such as writing-off of $25 billion debt, besides allowing private equity to capture more than a fair share of the holding company’s stock.

The bail-out package

The debt write-off worth $25 billion would mean a loss of capital for its power-generating business as well as participation in the parent company stocks along with $5 billion in new cash and debt. This proposal was filed before the Securities and Exchange Commission on April 15.

The potential buyers proposed a counter-offer that would entitle them to 85 percent of the equity in the parent company while the company would retain 15 percent equity. The parent company is in possession of a stake of 80 percent through an affiliate in Oncor which is deemed to be the most valuable asset in the entire Energy Future Holdings and the proposed buyout owners want to control it.

While there are rumors that this deal was outright, analysts say that the resolution of the financial crisis for Energy Future Holdings would take some time. The negotiations proposals were disclosed only after the expiry of a disclosure clause that was part of the negotiating deal, which included non-trading of their stakes as well as company debts.

Energy Future Holdings has suffered largely because of its low natural gas and energy prices. According to industry analysts, with an overall debt outstanding at $37.8 billion, the company will find it tough to show any growth pangs.

Debtors line-up

A glance at Energy Future Holdings line-up includes Kohlberg Kravis Roberts, Goldman Sachs-private equity division as well as TPG Capital. The $8 billion that the trio had provided Energy Future Holdings now stands at zero.  The private equity owners place a value of  modest 5 cents on the dollar for their stake in Energy Future Holdings. However, they have stipulated that new equity capital will be provided under different conditions.

Debtors’ counter-proposal

First and most importantly, Oncor Holdings would be placed under Energy Future Intermediate Holding Unit. The private equity owners have also tried to safeguard their interests in Oncor Holdings. Secondly, the debtors will place a claim in the earnings of Texas Competitive Electric Holdings, the wholesale power producing unit that is the cause of Energy Future Holdings’ current bout of crisis.

Thirdly, debtors are looking to increase their stake in not only TCEH but in the parent company as well to sustain better debt structuring for the controlling unit of Oncor.

Carrie Ann
Carrie Ann is Editor-in-Chief at Industry Leaders Magazine, based in Las Vegas. Carrie covers technology, trends, marketing, brands, productivity, and leadership. When she isn’t writing she prefers reading. She loves reading books and articles on business, economics, corporate law, luxury products, artificial intelligence, and latest technology. She’s keen on political discussions and shares an undying passion for gadgets. Follow Carrie Ann on Twitter, Facebook

Recent Posts

United to recall furloughed employees as travel recovers

United to recall furloughed employees as travel recovers

The fading of the pandemic and the rollout of vaccines has brought in some good cheer for the floundering air travel industry. More countries have opened up for business and are al
13 hours ago
UK’s Sanne agrees to consider Cinven bid

UK’s Sanne agrees to consider Cinven bid

Sanne, a UK fund administration business that provides alternative asset and corporate services, has agreed to hold talks with private equity firm Cinven over a potential £1.4bn t
1 day ago
Global stocks rise as investors ignore inflations indicators

Global stocks rise as investors ignore inflations indicators

Global stocks rose to an all-time high, with investor showing confidence in a strong economic recovery from coronavirus and the vaccine effect, but the market is still a bit cautio
1 day ago
UK watchdog whacks Amazon with probe for unfair data collection practices

UK watchdog whacks Amazon with probe for unfair data collection practices

The Competition and Markets Authority will focus on whether Amazon, Inc. favors merchants that use its delivery services.
4 days ago
Altice buys 12 percent stake in BT worth £2 billion

Altice buys 12 percent stake in BT worth £2 billion

Altice said it did not intend to make a bid for the British Telecoms company, though the takeover code also does not allow it to make an unsolicited buyout offer for six months wit
4 days ago
G7 countries agree on broad principles of minimum corporate tax deal

G7 countries agree on broad principles of minimum corporate tax deal

The world’s richest nations (G7) reached a landmark accord setting a global minimum corporate tax rate for multinationals. Would it be effective in tackling tax evasion and avoid
4 days ago