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The Biggest Ever LBO Is Now Officially The Biggest Non-Financial Bankruptcy In US History

Tyler Durden's picture


The bankruptcy of Energy Future Holdings, aka TXU, aka the largest LBO ever has been long in coming. As we previewed it most recently in September of last year, "if there was one deal that epitomized the last credit bubble, aside from the Blackstone IPO of course, it was the ginormous, $45 billion 2007 LBO of TXU, now Energy Future Holdings. And while the tide for the New Abnormal credit bubble has yet to expose its megalevered monoliths swimming fully naked, as for now corporations have opted for graduated semi-MBOs in the form of ever larger stock buybacks, the time to pay the piper for the last credit-fuelled binge has arrived and inevitable bankruptcy of this landmark deal is now just days away."

It turned out it was more like months away, but it finally arrived, and moments ago, TXU finally succumbed to (lack of) cash flow reality, when it filed for a prepackaged Chapter 11 bankruptcy on Tuesday morning after months of negotiations with creditors aimed at speeding the restructuring of the private-equity backed utility's debt load of more than $40 billion. While it is unclear just how much total debt the company will ultimately restructure, it is likely that the final number will be greater than Enron's, making this also the largest ever non-financial bankruptcy in history.

As we further previews a year ago, "the losers (in addition to the thousands of company employees who were and are about to be laid off): all those who invested equity in hopes nat gas prices would rise, and even looser credit would mean a quick and profitable flip in the next 3-5 years, namely KKR, TPG, as well as Lehman (RIP), Citigroup, and Morgan Stanley. These banks were also instrumental in underwriting (and holding on to) the loans and bonds that would fund this monster deal, which ultimately led to unprecedented writedowns for all those involved. The irony: the same companies that provided the LBO financing, will also now serve as the source of the company's $2+ billion DIP loan, so all is well with the world."

Billionaire Warren Buffett called his $2 billion investment in Energy Future bonds “a big mistake.”

More from the WSJ:

With more than $100 million in skipped debt payments coming due this week, the Texas energy company sought protection in the U.S. Bankruptcy Court in Wilmington, Del., with a plan that involves parceling out the company to appease lenders.


In broad outline, Energy Future, once known as TXU Corp., hopes to swap Texas Competitive Electric Holdings, a subsidiary that sells power in wholesale markets to big companies and other utilities, to get $25 billion worth of debt forgiven.


Additionally, the company has been in discussions with bondholders owed roughly $1.7 billion about converting their debt to ownership stakes in Energy Future Intermediate Holding Co., the subsidiary that owns Oncor, the company's regulated business that delivers power to more than 10 million customers across Texas, The Wall Street Journal has reported.


Tuesday's bankruptcy filing was expected, after months of public discussion about the prospect that auditors would raise the "going-concern" red flag, a warning that they doubt a company can continue to operate.


Energy Future's bankruptcy preparations included the negotiation of more than $11 billion in loans, to make sure the company stays in operation during the Chapter 11 proceeding, according to The Wall Street Journal.

So to all those who back in those bubbly, pre-Lehman days of 2007 said that the biggest LBO in history would soon result in the biggest bankruptcy in history (non-financial of course: we had Lehman for that, and all other banks too had it not been for the Fed), congratulations: you are now officially right.

The case is In re Texas Competitive Electric Holdings LLC, 14-bk-10978, U.S. Bankruptcy Court, District of Delaware (Wilmington).


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Tue, 04/29/2014 - 07:22 | 4706973 williambanzai7
williambanzai7's picture

This time is different

Tue, 04/29/2014 - 07:28 | 4706982 old naughty
old naughty's picture

isolated case, no?

Tue, 04/29/2014 - 07:31 | 4706987 max2205
max2205's picture

The stay on bonuses must have been sweet

Tue, 04/29/2014 - 07:34 | 4706993 GetZeeGold
GetZeeGold's picture



Now Officially The Biggest Non-Financial Bankruptcy In US History's a new record!

Tue, 04/29/2014 - 07:42 | 4707009 Headbanger
Headbanger's picture



Tue, 04/29/2014 - 07:51 | 4707027 dontgoforit
dontgoforit's picture


Tue, 04/29/2014 - 07:55 | 4707041 TheFourthStooge-ing
TheFourthStooge-ing's picture

Breaking new ground!

It's Disgustovative.

Tue, 04/29/2014 - 08:00 | 4707050 duo
duo's picture

TXU was the ultimate widow's and orphan's stock for decades.  A consistent 6% yield.  Then came financailization and deregulation.  Even with the smoke-filled-room-rate-setting of the TX "competetive" electricity market, they couldn't make it.

Sad, but this is what the country has become.

Tue, 04/29/2014 - 09:39 | 4707384 power steering
power steering's picture

Buffet's an old fool, but Becky digs him

Tue, 04/29/2014 - 09:47 | 4707430 Save_America1st
Save_America1st's picture

gee, I wonder if the Chinese have a few extra bucks laying around that they can use to scoop this place up along with all its assets on the cheap.  I'm sure they wouldn't mind acquiring some extra cheap nat gas, ay?

Tue, 04/29/2014 - 12:34 | 4708242 kchrisc
kchrisc's picture

They better get Reid and his son on the phone and find out.

Tue, 04/29/2014 - 11:39 | 4707920 Vashta Nerada
Vashta Nerada's picture

The reason they went broke is because of the regime's war on coal, not deregulation.

Tue, 04/29/2014 - 08:11 | 4707081 Al Gorerhythm
Al Gorerhythm's picture


This is just another drive by shooting. The money managers have transfered someone else's savings (used as security for the loan) to another group of elites. $45 billion worth but that is peanuts compared to the unknown $trillions distributed by the Fed and the BIS out of thin air. The dilution comes in good time. Austerity measures and purchasing power dilution are the ploys to keep the theft alive. Asset stripping by inflation.

End the Fed. End Fractional Reserve Banking. 

Tue, 04/29/2014 - 09:18 | 4707309 Flakmeister
Flakmeister's picture

More like simple greed run amok...

How much in fees did they pull out?

Tue, 04/29/2014 - 09:01 | 4707242 cosmyccowboy
cosmyccowboy's picture


Tue, 04/29/2014 - 10:17 | 4707551 monkeyboy
monkeyboy's picture

Now Officially The Biggest Non-Financial Bankruptcy In US History's a new record!


We're Number 1

We're Number 1

We're Number 1


Tue, 04/29/2014 - 10:45 | 4707684 DR
DR's picture

Everything is bigger in Texas!

Tue, 04/29/2014 - 08:01 | 4707052 TheFourthStooge-ing
TheFourthStooge-ing's picture


isolated case, no?

"This unfortunate event is an insulated isodent."
-- Rod Jackman, SEC strokesman

Tue, 04/29/2014 - 07:23 | 4706975 jmcadg
jmcadg's picture

Who cares bitchez. BTFATH.

Tue, 04/29/2014 - 07:33 | 4706990 max2205
max2205's picture

+10. Yes I am feeling a new ATH for the Spy real soon

Tue, 04/29/2014 - 08:00 | 4707049 Global Hunter
Global Hunter's picture


Tue, 04/29/2014 - 08:02 | 4707054 negative rates
negative rates's picture

Brass Monkey, That Funky Junkie!

Tue, 04/29/2014 - 07:25 | 4706979 Iam_Silverman
Iam_Silverman's picture

View from the inside here.

Will update as time allows (IOW, not while I'm at work)......

Tue, 04/29/2014 - 21:05 | 4710250 Iam_Silverman
Iam_Silverman's picture

OK, home now.  Things were very quiet here today.  Not many of the upper management were to be seen, and the ones that were here carefully plied us with encouragement ant platitudes.  Normally this Friday would have been our regularly scheduled payday, but due to the BK filing they opted to send out the checks this morning rather than taking the chance that the judge wouldn't allow them to if their "First Day" motions are rejected.  Anyway, due to an error on the part of our local HR staff, the supervisors here never got the message to approve (electronic) timesheets way ahead of schedule.  So, most of us got paid for strait 80 hours (two weeks) instead of including our overtime worked during the pay cycle.  That is a big hit.  We are just finishing up an outage at one of the units here, and there was quite a bit of overtime supposed to be on that check - including Good Friday, which was to be paid at Holiday Schedule (2-1/2X).  Some of the non-bargaining unit members still hadn't seen their checks hit the bank yet.  Hopefully that is just due to slower posting by their financial institutions.  My wife was wondering where the extra money went - I had to assure her that I was really working all those days she didn't see me until dark.  For some folks - the pay issue was more aggravating than to others.  The outage we are finishing up was extended due to poor advance planning, some poor job execution, and unfortunate incidents.  What a way to wrap things up! (80 hrs. paid vs. 172 hrs. worked)

Anyway, the thing we are most interested in is how the baton will be passed to the new "owners" of the company.  We are pretty sure that our existing contract language will be solid enough for an heirs and assigns continuation.  What we really don't know about is the sites operating license.  The NRC takes ownership (and thus liability) changes very seriously.  Even a name change takes time for approval.  So, we are just sitting back and watching what happens next.  Now, I am not that worried about my job.  I am in operations, and the law states the minimum number of us that have to be on site, whether or not the plant is online.  And, being online is the other issue.  Both units put about 2,400 MW out on the lines (Thanks Oncor!).  That is a little over 27% of the total demand at any one time on the North Texas side of the grid.  ERCOT simply does not have enough reserves to meet demand during the coming months if we are shut down due to ownership licensing issues.  The Region IV members of the NRC are well aware of this.  Let's hope that they have been proactively working with corporate to make this a bumpless transition.


Anyway, this article is already pushed back to the third page.  Must be a dead issue by now......

Tue, 04/29/2014 - 07:31 | 4706986 fonzannoon
fonzannoon's picture

the prudent move is to wait till they restructure the bonds and grab them at the new, higher yields.

Tue, 04/29/2014 - 07:37 | 4706997 buzzsaw99
buzzsaw99's picture

re the restructuring: even in bk some pigs are more equal than others

Tue, 04/29/2014 - 07:33 | 4706989 buzzsaw99
buzzsaw99's picture

the bk was inevitable i'm just shocked they didn't flip it to calpers first

Tue, 04/29/2014 - 09:06 | 4707258 BlindMonkey
BlindMonkey's picture

Good idea.  


I am imagining head the Calpers analysis team as the pointy-haired Dilbert boss.  


Junior Analyst: "Our due diligence suggests that the company has far too much debt exposure."


Pointy-haired boss: "That is preposterous!!  They get the best tee times and bring the best scotch afterwards.  Put us in for a few billion in bonds."

Tue, 04/29/2014 - 07:35 | 4706991 Dr. Engali
Dr. Engali's picture

The problem is they didn't listen to Krugman and take on more debt to fix their debt problem. In the immortal words of the great thinker and philosopher Joe Biden "we have to spend more in order to keep from going bankrupt".

Tue, 04/29/2014 - 07:38 | 4706999 bentaxle
bentaxle's picture

"Bankruptcy?" There's me thinking THAT was what you were referring to when you said "barbarous relic?




Tue, 04/29/2014 - 07:40 | 4707002 news printer
news printer's picture
Gerhard Schroeder's 'birthday party' with Vladimir Putin

The German government distanced itself from ex Chancellor Gerhard Schroeder on Tuesday after pictures depicting him in an embrace with Russian President Vladimir Putin in St Petersburg on Monday evening were published in German media.

Tue, 04/29/2014 - 08:28 | 4707122 ReactionToClose...
ReactionToClosedMinds's picture

great catch.........along with Jon Corzine........exChancellor Schroeder and his interactions with Putin et al is another one of the great 'western' scandals no one seems to want to look at because they are of the 'correct' political party and or ideology (party).  No 'news' jornolist attention by the likes of the child molesting BBC, Brian Williams, George Stephanopoulos, Bob Schieffer, 60Minutes, PBS/Frontline, etcetera (and I generally like Frontline ..except when it veers off into intellectual orthodoxy).

Most Americans have no idea what I am referring to...........

An example anology fro Americans: Think as if Bill Clinton sits on the PBOC Treasury Purchase Program Advisory Board.....while he makes a bundle but just possibly he is a funnel for payments back into a certain set of interests and parties back in the USA.  In other words, Putin, just like Saddam Hussein did with the United Nations idiot/hypocrites and Europhiles, bought off the Euroleft with Schroeder.

The United States SEC and Dept of Justice to Jon COrzine:  we just cannot find anyone else other than your CFO to corroroborate the allegations that you used clients accounts as collateral for the trade of the century that went awry for you don't sweat  (or leak anything about a certain political party and Administration......ok)


Tue, 04/29/2014 - 07:40 | 4707003 Bill of Rights
Bill of Rights's picture

I take full responsibility for what happened at Enron. But saying that, I know in my mind that I did nothing criminal. Kenneth Lay

Tue, 04/29/2014 - 07:44 | 4707011 Rip van Wrinkle
Rip van Wrinkle's picture

You can still ask Ken. I understand he's down in Paraguay somewhere.

Tue, 04/29/2014 - 08:16 | 4707092 Doctor Faustus
Doctor Faustus's picture

Paraguay? I thought it was Purgatory. 

Tue, 04/29/2014 - 07:40 | 4707006 Boomberg
Boomberg's picture

Something is terribly wrong here. The taxpayer should pay off the debts and finance the company from this point forward. It worries me that the business model that has kept the US economy afloat the last 6 years seems to no longer be in play. 

Tue, 04/29/2014 - 07:41 | 4707007 Comte d'herblay
Comte d'herblay's picture

LBOs were NEVER about the announced benefits that would accrue to merging two or more entities into one.

They were and are about:

The corporate executives, lawyers, the CPAs, and Advisors, banks executives and others hangers on, and the monstrous FEES they generated for all who handled the consolidation.

I don't suppose ANY of those entities will be forced to give back the billions that they made from this marriage. 


Tue, 04/29/2014 - 07:53 | 4707031 dontgoforit
dontgoforit's picture

No, but they should be.  That would sure start things in the right direction....for once.  Bastards.

Tue, 04/29/2014 - 08:05 | 4707068 spine001
spine001's picture

Complety correct. That is exactly why This time is NEVER different. And why the cycle repeats itself. The reason is that the incentives for the people that make these things happen are always short term and have nothing to do with whether the deals make any sense for society at large. Or even for the long term benefit of the companies or Countries involved.

Tue, 04/29/2014 - 08:34 | 4707143 Iam_Silverman
Iam_Silverman's picture

"LBOs were NEVER about the announced benefits that would accrue to merging two or more entities into one."

Who really won in the LBO?

John Wilder

Meet TXU-ex John Wilder, super tycoon

"The former chairman and CEO of TXU is now technically unemployed. But he personally walked away with more than $270 million from the $32 billion private equity buyout, completed last week."

Tue, 04/29/2014 - 09:20 | 4707316 Ban KKiller
Ban KKiller's picture

Again, fascism is the word.

Tue, 04/29/2014 - 07:44 | 4707012 Bangin7GramRocks
Bangin7GramRocks's picture

Corporate bankruptcy? That's where a company fires the low and middle level employees, wipes out their retirements and pays the high level assholes millions of dollars to retire and laugh about fucking up so bad. What a country!

Tue, 04/29/2014 - 07:45 | 4707015 ms8172
ms8172's picture

This means the S&P will be screaming higher today!

Tue, 04/29/2014 - 08:04 | 4707061's picture

Duh, it's Tuesday. 

Tue, 04/29/2014 - 08:14 | 4707086 Al Gorerhythm
Al Gorerhythm's picture

Or; Duh, it's a weekday.

Tue, 04/29/2014 - 07:47 | 4707016 falak pema
falak pema's picture

Can anybody explain to me why Texas based energy companies have such a propensity to go belly up?

In the lone star state where energy is a religion, as the Bush family; as the Halliburton spin-off;  have made it only too clear. 

Just the other day we read of a major player moving its HQ from Cali to Texas...

What gives? Texas, land of the energy dinosaur cemetery? 

Or just creative destruction under natural selection? 

Tue, 04/29/2014 - 07:55 | 4707036 Catullus
Catullus's picture

None of those things are related.

Come up with another narrative to comfort yourself.

Tue, 04/29/2014 - 08:15 | 4707077 falak pema
falak pema's picture

I don't need comfort I need clarification; but thanks. 

I must have dreamt up that Enron thingie and Halliburton's bonanza in Iraqi and post Iraqi shenanigans. Halliburton is also very active in Africa, where the race for whats left of its resources, is now hotting up big time; with China/India competing against USA/France/UK in the Rwanda/Uganda/RDC/Central Africa/Sudan-- Pentagonal region of oil prospection and rare metal mining.

Tue, 04/29/2014 - 08:28 | 4707124 Iam_Silverman
Iam_Silverman's picture

Hallibuton expanded too quickly outside of its core competencies.

It was used as a shell for "regional political operations", and they became too dependent on that largess.  If they'd stayed in the oilfield services arena they would be fine.

Enron, while based in Texas, really didn't offer any retail, commercial or other power sales here.  They didn't even own any generation capacity (here, in Texas) that I'm aware of.  I think that they mainly tried to game the western grid power pooling/sales and limited distribution.

Tue, 04/29/2014 - 08:45 | 4707166 falak pema
falak pema's picture

That's precisely my point; when Oil and politics mix to give exponential corporate expansion on the back of business deals fed on Warmongering, as in Iraq or in Africa, or on crony baloney as for Enron, what happens to these rapid expanding companies who "piggy back politically", when their mentors lose their political clout and a political asset becomes overnight a political liability, like a derivative financial product going sour...or, you become a beanstalk with no real roots?

Corporate growth on  true savvy is fine but when based on political grapevine, it can explode  like retroactive dynamite.

Tue, 04/29/2014 - 11:40 | 4707925 marathonman
marathonman's picture

When your business model is skimming markets - Enron, MF Global, Lehman, Goldman, etc. - one wrong bet on all those derivatives can blow the whole company to bits in a matter of days.  

TXU is just a case of someone finding a greater fool to sell out to and loading up a mediocre industrial asset with debt helping to strip out the wealth of the company to the insiders that made the deal.  It was never going to work, but the insiders made a lot of money and stuck the carcass on the bondholders who have the Federal Reserve to back them up and make them whole if they ever get into real trouble.  

It's a cluster fark on many levels.

Tue, 04/29/2014 - 08:52 | 4707206 Ban KKiller
Ban KKiller's picture

Bad air, bad water, bad land, ignorance plus bam! Texans!

Proud to be serfs!

Tue, 04/29/2014 - 21:07 | 4710265 Iam_Silverman
Iam_Silverman's picture

Well, apparently we're not the only ones wallowing in ignorance.....

Oh, the serfs will be spread far beyond the borders of our state.  Pain for whoever and wherever the Federal Reserve proudly serves!

Tue, 04/29/2014 - 07:54 | 4707033 buzzsaw99
buzzsaw99's picture

Unless Goldman Sachs Capital Partners sold their stake the Muppets took another fisting on that one. Them and KKR. Couldn't happen to a nicer (read: crookeder) bunch.

Tue, 04/29/2014 - 08:15 | 4707087 zipit
zipit's picture

But the muppets die, KKR just gets its asshole sewn up and carries on.

Tue, 04/29/2014 - 07:56 | 4707044 Seasmoke
Seasmoke's picture

We must continue to overpay the management executives, otherwise they might go somewhere else.....where that somewhere else is, no one knows...but we must overpay them. 

Tue, 04/29/2014 - 08:04 | 4707063 negative rates
negative rates's picture

Must is a tough nut to crack, did you try cliffonomics?

Tue, 04/29/2014 - 10:06 | 4707519 insanelysane
insanelysane's picture

I like how companies can "restructure" their debt but if joe sixpack wants a better mortgage deal, joe is lambasted with "live with the terms you originally signed up for."

Tue, 04/29/2014 - 08:03 | 4707060 Catullus
Catullus's picture

Thank god.

What a tremendous waste. The cash flows from TCEH are great. Management could have paid the stub and gone to October in a zombie state. They did the right thing this time.

Tue, 04/29/2014 - 08:29 | 4707126 BaghdadBob
BaghdadBob's picture

But but's Chapter 11. Bankrupt only in name. Creditors (pension funds) get screwed. Administrators are quids in. What's the fuss all about?

Tue, 04/29/2014 - 08:36 | 4707144 Moe Hamhead
Moe Hamhead's picture

Enron, part deux.

Tue, 04/29/2014 - 08:49 | 4707195 Ban KKiller
Ban KKiller's picture

Texas...what else does one need to know? 

ENRON....gee, that rings a bell. Was that a sports team? 

Tue, 04/29/2014 - 11:42 | 4707936 marathonman
marathonman's picture

At least Texas let them go bust.

Tue, 04/29/2014 - 09:11 | 4707280 monopoly
monopoly's picture

Just the beginning. The first straw.

Tue, 04/29/2014 - 09:55 | 4707465 mholzman
mholzman's picture

Thanks you for the post. Great!

Strange or not so strange: 2007 was the year of the real estate fallout. Same folks involved. Guess they just moved on to bigger bets. No cost to them anyway.

Tue, 04/29/2014 - 09:55 | 4707466 junction
junction's picture

From a link above, an article in Muckety about TXU CEO.  3 years as CEO at TXU and he walks away with $270 million.  Not bad.  

"The former chairman and CEO of TXU is now technically unemployed. But he personally walked away with more than $270 million from the $32 billion private equity buyout, completed last week.

TXU, now called Energy Future Holdings Corp., is owned by Kohlberg Kravis Roberts & Co. and TPG, formerly Texas Pacific Group.

“I’ve never regretted for a moment my decision to join TXU,” Wilder wrote in a farewell letter to employees at the completion of the deal. He joined the company in 2004 and is credited with resurrecting the financial fortunes of the Texas power giant."

Tue, 04/29/2014 - 10:30 | 4707610 Bernoulli
Bernoulli's picture

This is just the first of many...

Half the electricity utilities in Europe will go bust.


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