Energy Future Holdings, the Texas power giant acquired in the biggest leveraged buyout ever, filed for bankruptcy Tuesday morning as part of a deal to slash its roughly $50 billion of debt.
Under the agreement, the company will split off its deregulated Texas Competitive Holdings subsidiary and hand it over to creditors in exchange for cutting $23 billion in debt.
The Dallas company, formerly known as TXU Corp., also said it has lined up more than $11 billion in financing to keep operating while it reorganizes. The company expects the restructuring to take 11 months.
The company listed assets of $36.4 billion and debt of $49.7 billion in its bankruptcy filing.
KKR, Goldman Sachs Capital Partners and TPG Capital in 2007 put $8.3 billion down to buy the power utility serving 2 million customers, while having the company borrow the rest to fund the $44 billion buyout.
Henry Kravis and George Roberts of KKR must be feeling a sense of déjà vu: Their firm led the biggest buyout of the 1980s — a $30 billion acquisition of RJR Nabisco — much of which ended up in bankruptcy.
Unlike the outside fund investors, KKR partners will recover more than half their money. The firm collected a roughly 1.25 percent annual management fee on the $1.8 billion fund investment over six-years — amounting to a tidy 7.5 percent return on money the limited partners invested.
The firm committed about 5 percent of the money raised in the $17.6 billion fund that bought Energy Future Holdings, giving the actual firm, but not its outside investors, a profit.
However, the firm through its listed stock vehicle invested $200 million in EFH that will be largely lost, and when that is factored in, the firm recovers 56 percent of its roughly $290 million investment.
The limited partners, meanwhile, largely get wiped out.
KKR at the end of last year raised a new $9 billion fund, just a little more than half of what it raised in the fund in 2008 that bought Energy Future Holdings.
To compare, Apollo Global Management just raised more than it had for its boom-era flagship fund.
KKR maintains that unlike then, it now raises geographically focused funds — a Europe fund — instead of one global vehicle. While that is true, the EFH debacle has tarnished the golden patina surrounding KKR, critics said.
This 2007 EFH deal — reached at the top of the market — seemed a stretch to begin with. The company borrowed money at 18 times its cash flow after interest to buy what was then called TXU, and the loans matured in seven years.
The belief was that natural gas prices would rise, and the owners could refinance the loan before it became due. Instead, prices fell.
Still, without the interest payments — even with the lower gas prices — EFH would have been profitable.
A partner at a large infrastructure fund told The Post he believes an investor like him with a longer time horizon would have done better.
“Infrastructure investing should be low volatility and long duration. And that is not the private equity DNA.”
KKR declined comment.