Bloomberg News

Energy Future Says It Will Meet Debt-Ratio Pact in 2013

October 30, 2012

Energy Future Holdings Corp., the biggest power-generation owner in Texas, will comply with its leverage ratio and credit agreement for next year, Chief Financial Officer Paul Keglevic said during a conference call with investors today.

The company’s Texas Competitive Electric Holdings unit expects a reduction of $660 million to $820 million to its 2013 adjusted earnings before interest, taxes, depreciation and amortization from lower prices on contracts to lock in power- generation margins and lower retail electricity sales, according to the Dallas-based company’s investor presentation slides.

Faced with power rates that have fallen by half since the company was taken private in 2007 in the largest buyout in history, Energy Future has sought to reduce its risk of default by extending debt maturities and asking bondholders to swap their holdings at discounted prices for new securities. Energy Future has protected itself from a plunge in natural gas prices with hedging contracts that begin to roll off next year.

“If low natural gas prices continue, they pose a significant challenge to the company’s cash flows as we become less hedged to natural gas prices,” Chief Executive Officer John Young said during the conference call.

Secured Debt

The projected decrease in earnings will not threaten the competitive unit’s covenant ratio in which secured debt must not be more than 8 times adjusted EBITDA, Keglevic said. The company’s secured debt to adjusted EBITDA ratio was 5.59 to 1 as of Sept. 30, according to a regulatory filing.

The company, formerly known as TXU, reported its third- quarter loss narrowed to $407 million yesterday, from $710 million a year earlier. Sales fell 25 percent to $1.75 billion on lower power prices and weaker demand due to milder summer weather.

The company may need to restructure its balance sheet next year as low gas prices, which help set the price of electricity, have cut into the company’s cash flow, Moody’s Investors Service said in a research note on Aug. 9.

Gas for December delivery fell 11.2 cents, or 2.9 percent, to $3.691 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price for the contract month since Oct. 5. Gas has climbed 23 percent this year.

The company’s $1.83 billion of 10.25 percent bonds due November 2015 traded at 23 cents on the dollar on Oct. 25 from a high of 88.5 cents in January 2010, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Energy Future was sold to a group led by KKR & Co. (KKR:US) and TPG Capital in 2007, in a $43.2 billion cash transaction.

Energy Future’s units include Oncor, a regulated power-line business; TXU Energy, a retail electricity seller with about 1.8 million customers; and Luminant, which owns more than 15,400 megawatts of generation capacity in Texas.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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