Residents in Phoenix may have heard that the three companies, KKR & Co., Goldman Sachs Capital Partners and TPG Capital, that bought out much of Energy Future Holdings Corp. are struggling to recover just 3 percent of their investment. The energy company plans to file for business bankruptcy. The companies were negotiating a resolution in the case, but discussions stalled as a deadline loomed. On Oct. 15, a regulatory filing released three different proposals that might be used to restructure the energy company. One of these gave the secured lenders all the equity and gave current owners a share of $800 million; however, the plan wasn’t accepted. Another proposition would have paid back $270 million, a fraction of the original purchase price of more than $48 billion.
The three companies, with additional investors that included Lehman Brothers Holdings Inc., Citigroup Inc. and Morgan Stanley, purchased the energy company in the largest leveraged buyout in history based on a projected increase in gas prices. Hydraulic fracturing brought an influx of gas to the nation, which caused losses in gas prices for more than three years. Even Warren Buffet expressed his regret at his investment into the company.
If the company files bankruptcy, it would be the 12th-largest in the history of the nation. Creditors hope the process is accelerated as they want to recover as much of their assets as possible. They realize that finances could be quickly drained if negotiations turn hostile.
Businesses often have complex financial matters that they need to resolve. An attorney who focuses on business bankruptcy might be able to review financial options with a company in order to determine if bankruptcy is an appropriate plan of action.
Source: Bloomberg, “KKR to Goldman Skirmish for Scraps as LBO Bankruptcy Looms“, Beth Jinks & Richard Bravo, October 21, 2013