The largest leveraged buyout in history is teetering on the brink of default.
Topped with an unprecedented $44 billion in debt,
For the second quarter of 2009, the Dallas-based energy company, formerly known as TXU, reported a 23% year-over-year decline in operating revenue to $2.3 billion and a consolidated net loss of $155 million.
In early August, just before the earnings report was released, the company’s ratings were cut by one notch to ‘Caa1’ from ‘B3’ by Moody’s Investors Service due to a growing concern about its heavily leveraged capital structure. The ‘Caa1’ rating is seven steps below Moody’s lowest investment-grade debt rating.
Energy Future Holdings was privatized in October 2007 by
Moody’s said Energy Future Holdings’ capital structure is “untenable and will likely prompt the company to pursue some form of restructuring activity.”
“These actions are likely to address the company’s liquidity profile and its substantial maturities upcoming in 2014,” the ratings agency said, noting that Energy Future Holdings has about $23 billion in scheduled maturities in that one-year period.
On July 30, Thomson Reuters reported that Energy Future Holdings was seeking an amendment to its credit facility that would allow the company to issue up to an additional $5 billion in second lien debt. It is not yet known what the proceeds of such an issuance would be used for, but secured lenders reportedly voiced their hopes that the company would use it to pay down its term loans.
Moody’s said it would view any deal in which the company retires its debt at a value below par as a “distressed exchange,” which is tantamount to default in the eyes of the ratings agency.
The looming threat of default combined with its dreary second-quarter earnings report chipped at the value of Energy Future Holdings’ debt on the loan secondary market. On Aug. 4, the company’s term-loan B was trading down about 25 basis points from the previous-day levels of 78.25 cents to 78.75 cents on the dollar. A day later, the loans fell to between 76.5 cents and 77.5 cents on the dollar.
Energy Future Holdings was not immediately available for comment. —Ari Nathanson