Energy Future Holdings Corp. owners KKR & Co. (KKR:US), TPG Capital and Goldman Sachs Capital Partners, which took the company private seven years ago in a record leveraged buyout, will have their investments almost erased under a proposed bankruptcy reorganization plan.
Apollo Global Management LLC (APO:US), Oaktree Capital Group LLC, Centerbridge Capital Partners LP and Angelo Gordon & Co., who lead holders of secured loans at the company’s deregulated power unit, Texas Competitive Electric Holdings, will get all the equity in that subsidiary when it’s separated in a planned tax-free deal, according to a preliminary agreement filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.
Those investors will also get the entire cash proceeds of a new financing for the unit. Henry Kravis’s KKR, David Bonderman’s TPG and the other sponsors of the buyout were told they would get a 1 percent stake that will be diluted when bankruptcy loans convert to equity, accounting for more than half of the new company’s stock.
The 2007 purchase of Dallas-based Energy Future Holdings, known as TXU Corp., for $48 billion came at the peak of a three-year boom in leveraged buyouts. It turned into a big loss for KKR, TPG and Goldman Sachs, which together loaded the company with debt. The sponsors and their co-investors bought $8.3 billion of equity and financed the rest of the buyout.
Tom Johnson, an outside spokesman for Energy Future’s sponsors, declined to comment yesterday on the filing.
The deal, larger than KKR’s 1989 takeover of RJR Nabisco Inc., the biggest at the time, left Energy Future struggling to cut debt when the financial crisis, coupled with booming shale gas production, sent natural gas prices down starting in 2008.
One of many fights with creditors before yesterday’s bankruptcy filing was over splitting the company into regulated and deregulated entities, as Energy Future plans to do. The filing says an accord with senior lenders to avoid triggering tax liability needs tax authorities’ approval.
Energy Future has commitments for more than $11 billion of bankruptcy loans, it said yesterday.
Some bondholders at the regulated unit known as Energy Future Intermediate Holding agreed to turn their stakes into a $5.4 billion “super-priority” bankruptcy loan, payable before other so-called debtor-in-possession loans, according to the pact. Pacific Investment Management Co., Fidelity Investments and BlackRock Inc. are three of the biggest holders of those bonds, according to data compiled by Bloomberg.
Investors holding the unit’s unsecured debt, known as payment-in-kind notes, can exchange them for a lower-priority $1.9 billion DIP paying 8 percent interest annually, until it converts into 64 percent of the equity in the reorganized Energy Future, according to the filing. PIK investors include Avenue Capital Group, York Capital Management, GSO Capital Partners, Third Avenue Management and Peter Schoenfeld Asset Management.
About $3.1 billion of debt would be canceled at the holding companies that own the regulated utility Oncor. About $31 billion of Energy Future’s funded debt was issued by the generation business and its affiliates and $7.7 billion by the entity that owns Oncor.
The company’s assets of $36.4 billion and liabilities of $49.7 billion rank its bankruptcy with Enron Corp.’s $48.9 billion collapse in 2001.
The case is Energy Future Holdings Corp., 14-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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