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Right before the financial crisis hit, private equity firms were doing leveraged buyouts of companies here, there, and everywhere.After the crisis, however, some of those deals didn’t go anywhere, and the turn-arounds that were intended never materialised.
Now, Bloomberg reports, we may be about to see the biggest LBO deal in history go south. Energy Future Holdings Corp. (EFH) is facing bankruptcy. It was bought by KKR and TPG Capital for $48 billion in 2007, and would be the biggest LBO deal to collapse since Chrysler in 2009.
The firms paid so much money for EFH because they thought that natural gas prices would rise. As we know now, they didn’t.
Specifically, the problem is that EFH’s wholesale power unit, Texas Competitive Electric Holdings has $3.8 billion of loans maturing in October 14th. The company has already started restructuring talks, but they could very well fail.
Senior lenders — including Franklin Resources Inc., Apollo Global Management LLC, Oaktree Capital Group LLC and GSO Capital Partners — probably would seek to seize the unit if there is a bankruptcy, said one creditor, who asked not to be identified because the process is private.
…A bankruptcy would wipe out much of the $8.3 billion investment made by buyers including KKR, TPG and Goldman Sachs Capital Partners in what was the biggest LBO in history. It would be the highest-profile private equity-backed company to go under since Chrysler was bailed out by the U.S. government in 2009.
“This deal never made sense,” Erik Gordon, a private- equity and law professor at the University of Michigan, said in an interview. “It could only have been done during the times of hysterical overoptimism by everybody — by KKR and TPG and by all the lenders who put up the money.”