Energy Future Plan Said to Almost Wipe Out Owners KKR to TPG - Bloomberg
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4/2/2014 Energy Future Plan Said to Almost Wipe Out Owners KKR to TPG - Bloomberg http://www.bloomberg.com/news/print/2014-04-01/energy-future-plan-said-to-almost-wipe-out-owners-kkr-to-goldman.html 1/3 Energy Future Plan Said to Almost Wipe Out Owners KKR to TPG By Richard Bravo and Beth Jinks - Apr 2, 2014 KKR & Co., TPG Capital and Goldman Sachs Capital Partners, the firms that acquired Energy Future Holdings Corp. in the biggest-ever leveraged buyout, would be all but wiped out in a reorganization plan being discussed, said three people with direct knowledge of the negotiations. The firms may accept as little as 1 percent of the equity in the company after it completes a Chapter 11 restructuring, said the people, who asked not to be identified because the talks are private. The pre- bankruptcy plan is being negotiated by the private-equity owners, the company’s management and holders of the power producer’s $45.6 billion of debt. Energy Future is hashing out a proposal that would reduce the amount of time it takes to restructure in Chapter 11 and limit the chaos of a free-for-all filing. Fidelity Investments , which is a key debtholder throughout the Dallas-based company’s capital structure and had been a holdout on the bankruptcy road map, moved closer last week to an accord. Adam McGill, a spokesman for Energy Future, declined to comment, as did Tom Johnson , a spokesman for the private-equity sponsors at Abernathy MacGregor Group. The proposal, which may still fall through, would also give full legal releases to KKR, TPG and Goldman Sachs, the people said. The private-equity firms as well as a group of unsecured creditors at the regulated Energy Future Intermediate Holding division, agreed to the current deal being discussed, according to one of the people. Filing Delayed Last year, the sponsors said they would support a restructuring proposal that would have allowed them to retain 15 percent of the company’s equity interest, according to an April 15 filing with the U.S. Securities and Exchange Commission. That plan was rejected. The power producer’s acquisition at the peak of the buyout boom in 2007 was essentially a bet, using $40.1 billion of debt and an $8.3 billion equity check, that natural gas prices would rise. Instead, prices have fallen 68 percent since July 2008. Gas prices set the cost of electricity in the Texas market.
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4/2/2014 Energy Future Plan Said to Almost Wipe Out Owners KKR to TPG - Bloomberg
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Energy Future Plan Said to Almost Wipe Out OwnersKKR to TPGBy Richard Bravo and Beth Jinks - Apr 2, 2014
KKR & Co., TPG Capital and Goldman Sachs Capital Partners, the firms that acquired Energy Future
Holdings Corp. in the biggest-ever leveraged buyout, would be all but wiped out in a reorganization
plan being discussed, said three people with direct knowledge of the negotiations.
The firms may accept as little as 1 percent of the equity in the company after it completes a Chapter 11
restructuring, said the people, who asked not to be identified because the talks are private. The pre-
bankruptcy plan is being negotiated by the private-equity owners, the company’s management and
holders of the power producer’s $45.6 billion of debt.
Energy Future is hashing out a proposal that would reduce the amount of time it takes to restructure
in Chapter 11 and limit the chaos of a free-for-all filing. Fidelity Investments, which is a key
debtholder throughout the Dallas-based company’s capital structure and had been a holdout on the
bankruptcy road map, moved closer last week to an accord.
Adam McGill, a spokesman for Energy Future, declined to comment, as did Tom Johnson, a
spokesman for the private-equity sponsors at Abernathy MacGregor Group.
The proposal, which may still fall through, would also give full legal releases to KKR, TPG and
Goldman Sachs, the people said. The private-equity firms as well as a group of unsecured creditors at
the regulated Energy Future Intermediate Holding division, agreed to the current deal being
discussed, according to one of the people.
Filing Delayed
Last year, the sponsors said they would support a restructuring proposal that would have allowed
them to retain 15 percent of the company’s equity interest, according to an April 15 filing with the U.S.
Securities and Exchange Commission. That plan was rejected.
The power producer’s acquisition at the peak of the buyout boom in 2007 was essentially a bet, using
$40.1 billion of debt and an $8.3 billion equity check, that natural gas prices would rise. Instead,
prices have fallen 68 percent since July 2008. Gas prices set the cost of electricity in the Texas market.
4/2/2014 Energy Future Plan Said to Almost Wipe Out Owners KKR to TPG - Bloomberg
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Energy Future earned $5 million in the third quarter of 2013, its first net income since the fourth
quarter of 2010, according to data compiled by Bloomberg. Total liabilities were $50.2 billion as of
Sept. 30, compared with total assets of $38.7 billion.
Biggest Losers
The biggest losers will be the equity investors. KKR put up $2 billion and TPG and Goldman Sachs
each added $1.5 billion. An additional $3.3 billion came from clients of the three firms and from
Lehman Brothers Holdings Inc., Citigroup Inc. and Morgan Stanley. KKR and TPG had both written
down their investment to 5 percent of the initial value as of last year.
The biggest piece of TXU’s debt load, a $15.4 billion loan due in October 2017, has a market value of
about $11.2 billion, Bloomberg data show.
About $16.4 billion of lower-ranking bonds tracked by a Bank of America Merrill Lynch index had a
market value of $10.4 billion.
Energy Future said in a March 31 filing with the SEC that it would delay releasing its annual report,
skip $109 million in interest payments due yesterday and use grace periods to avoid a default. The
company said in a separate filing that the 10-K may include a warning about its ability to continue as
a going concern, which would trigger a default.
Back to Table
The move may avoid a bankruptcy filing for as long as a month and will allow creditors and Energy
Future more time to develop a reorganization plan. Any deal would be contingent upon lenders at the
company’s deregulated Texas Competitive Electric Holdings unit agreeing to a resolution that
wouldn’t trigger a tax liability at the parent, one of the people said.
Senior lenders to the deregulated unit who walked away from negotiations last year -- led by Apollo
Global Management LLC, Oaktree Capital Group LLC and Centerbridge Capital Partners LP - - are
back at the table for talks this month, people with knowledge of the talks said last week.
Fidelity, which manages $1.9 trillion of assets, owns debt in at least seven parts of Energy Future,
according to data compiled by Bloomberg. Because varying levels of seniority in the holdings
determine which creditors are paid first, the firm has been left in the position where any
reorganization would favor some assets over others.
Under terms being discussed, Fidelity would get almost 40 cents on the dollar in cash for notes it holds
in the parent company of the power producer, one of the people said. The Boston-based money
manager had rejected a previous offer for a debt swap valued at 10 cents on the dollar, according to a
4/2/2014 Energy Future Plan Said to Almost Wipe Out Owners KKR to TPG - Bloomberg
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Nov. 1 regulatory filing.
To contact the reporters on this story: Richard Bravo in New York at [email protected]; Beth
Jinks in New York at [email protected]
To contact the editors responsible for this story: Shannon D. Harrington at
[email protected] Caroline Salas Gage
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