The turnaround of private equity firms KKR & Co. (KKR) and TPG's failing US$48 billion investment on Energy Future Holdings Corp. could depend on US$1.48 billion worth of junior bonds.
Debt research firm CreditSights Inc. predicted that the two firms will attempt to purchase the 11.25% debt attached to the company's regulated business and is due December 2018. The move would give the two private equity firms leverage to force the lenders of the Energy Future Holdings' unregulated branch into a reorganisation, leaving part of the Dallas-based business to the buyout firms.
Energy Future Holdings Corporation, formerly TXU Corp., had suffered nine straight quarterly losses and prompted the company to propose a bankruptcy plan during early 2013. The proposal that would have kept both the regulated and unregulated units together was rejected by creditors, including Apollo Global Management LLC.
"They're going to have to pony up cash -- there's no ifs, ands or buts about it," said CreditSights analyst Andy DeVries in a telephone interview. He also commented that existing creditors of the competitive business "would like to be a part" of the regulated unit, "and that's why the sponsors can sort of wiggle in here and make some moves."
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