EFH files for Chapter 11

The Texan power company, bought by TPG, KKR and Goldman in 2007 for a record $48 billion, has folded under the weight of around $40bn of debt and filed for Chapter 11 bankruptcy.

Energy Future Holdings, the Texan energy company bought by Goldman Sachs, Kohlberg Kravis Roberts and TPG Capital in 2007 in the biggest buyout yet completed, has filed for Chapter 11 bankruptcy.

The decision, long predicted, brings the curtain down on one of the private equity industry's biggest ever busts, wiping out around $8 billion of equity invested by the trio.

The company, formerly known as TXU, confirmed the restructuring plan in a statement on Tuesday.

It currently has about $40 billion in debt on its books, which the restructuring plan via Chapter 11 proceedings will seek to address.

John Young, president and chief executive officer of EFH, said in the statement: “With this restructuring plan, we now have a path to a sustainable capital structure that would put EFH and its family of companies in an even stronger position over the long term to deliver for all of our stakeholders, including our customers, our employees and our business partners. This restructuring is focused on our balance sheet, not our operations. We fully expect to continue normal business operations during the reorganisation.”

EFH has a complex structure with a number of subsidiary units including Texas Competitive Electric Holdings Company (the holding company for EFH’s competitive businesses, including Luminant and TXU Energy), and Energy Future Intermediate Holding Company (the holding company for EFH’s regulated business, Oncor Electric Delivery Company).

Under the terms of the proposed restructuring, TCEH and its subsidiaries will separate from EFH without triggering any material tax liability, and its first lien lenders will receive all of their equity in the reorganised TCEH, together with the cash proceeds from the issuance of new debt, in exchange for eliminating around $23 billion of TCEH's funded debt.

EFIH meanwhile would eliminate about $2.5 billion of its funded debt through measures including a capital infusion of up to $1.9 billion from certain unsecured noteholders. This capital would convert, along with all EFH and EFIH unsecured notes, into equity in the reorganised EFH upon completion of the reorganisation. In addition, certain EFIH noteholders will receive cash as part of the deal, the company added.

At EFH level, the deal would herald the elimination of about $600 million of debt. EFH would continue to own EFIH, and EFIH would continue to retain its interest in Oncor.

The company envisages the restructuring plan will be finalised within nine months and completed within 11 months. “The agreement has substantial support from the TCEH first lien lenders, the EFIH unsecured creditors, the EFIH first and second lien lenders, EFH unsecured creditors, and the three private equity holders of EFH,” the company said.

For further analysis of EFH, including a detailed breakdown of its capital structure, click HERE