TXU deal as troubled as ever


The megadeals that big private equity firms notched at the height of the industry's frenzy came under lots of scrutiny as the bubble burst.

The deal that perhaps drew the most attention was the $45 billion deal for TXU, now known as Energy Future Holdings. It was labeled the biggest leveraged buyout in history and featured a big-name club comprising of KKR, TPG Capital and Goldman Sachs, which true to form had its claws all over this deal from many sides of the table. 

The deal has unfortunately soured over the past few years. Now, no less than Warren Buffet says the bonds amount to a big stinker. He called the bet "a big mistake" in his annual letter to shareholders. Indeed, the big bet on the Texas natural gas company has failed to pay off. The firm lost nearly $2 billion last year, it has lost retail customers at an alarming clip and it remains saddled with junk bonds that have investors grumbling.

To be sure, the debt has been restructured so that the initial maturities will not hit until 2014. Still, the bonds trade at less than 30 cents on the dollar, and the speculation continues regarding the likelyhood of an outright default.

So what are the private equity titans to do?

Well, they have made their money already in the sense in that they have already pocketed big fees, to the tune of $300 million plus annual management fees. A good move now would be to forego additional fees until the company is in better shape.

Perhaps the board's compensation committee would also seek a partial clawback? That would be revolutionary, and frankly it's not going to happen. But what a statement it would make.

For more:
- here's an article from the Houston Chronicle

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