Henry Kravis may be trying to save the largest buyout in history from imploding, but that hasn’t stopped his firm from charging the failing company fees for the effort.
According to several sources familiar with the matter, Kravis’ firm, Kohlberg Kravis Roberts, along with Texas Pacific Group and Goldman Sachs Capital Partners, each stands to be paid $4.5 million as part of a debt-restructuring plan for Energy Future Holdings, the Texas energy company formerly known as TXU that the three buyout shops took private in 2007 for a record $49 billion.
The restructuring was already controversial because analysts say it attempts to shift some of EFH’s $41 billion in debt to the weaker of two entities that make up the energy giant.
Now, experts are blasting the buyout firms’ bid to extract cash from an entity already limping along.
“You can make an argument that if they were acting in good faith, they might want to eat the fees as part of their commitment,” said respected private-equity expert and Harvard University Professor Michael Jensen in an interview with The Post.
KKR declined to comment.
As part of the restructuring, KKR is seeking an exchange-offer agent fee, while TPG wants an advisory fee and Goldman is eyeing a restructuring fee. The payments, which total $13.5 million, are contingent on the restructuring, sources said.
However, many observers think EFH can ill afford to cough up even that amount of cash.
Last week, Moody’s Investors Service said EFH’s capital structure was untenable if it pursued the restructuring, and that the Texas utility would be left with “very little financial flexibility to address unexpected, but normal, challenges to its ongoing generation and distribution businesses.”
To be sure, private-equity firms typically charge their companies fees, but when a firm is struggling financially, imposing fees raises eyebrows.
The Post earlier this month reported that EFH’s debt-swap proposal was meeting stiff resistance from bondholders including Franklin Templeton Investments. The company has since amended the debt swap by raising the amount of the exchange to $4 billion from $3 billion and extending the deadline to Nov. 10.
Through the proposed exchange, the PE firms want to reduce EFH’s debt from roughly $5 billion to $3 billion, and shift that debt to EFH’s healthier Oncor division. It would be a major step toward separating the two divisions and giving the PE firms a chance to continue owning Oncor.