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February 26, 2013 11:48 pm
Jim Millstein, the former US Treasury official who led the restructuring of AIG, has been hired by creditors of Energy Future Holdings, the former TXU, to begin talks with the company aimed at restructuring almost $46bn in debt, creditors say.
The private equity owners hedged the risk of gas prices falling for five years. But these hedges are starting to expire, leaving the group with too much debt for its declining cash flow.
The group’s bank debt trades at about 65 cents on the dollar but Goldman, KKR and TPG are likely to fight hard to preserve some of their equity, which is valued at 5 to 10 cents on the dollar.
The stakes are high for TPG after several other investments in its flagship fund were marked to zero. KKR has offset its TXU investment with some lucrative investments in shale deals.
Mr Millstein, who advised US Airways on its merger with American Airlines, is a highly experienced restructuring professional. He left the Treasury in 2011 to establish an advisory firm with offices in Washington and New York. Before his stint at Treasury, he was co-head of the restructuring practice at Lazard.
Sitting across from the private equity owners will be some leading distressed debt investors, including Apollo Global Management, Centerbridge Partners, the GSO arm of Blackstone, and Oaktree Capital. These firms have bought debt at a fraction of its face value on the belief the group will need a capital restructuring.
Both sides are eager to restructure the debt via negotiations, which are likely to be long and contentious. A large portion of the debt has already been refinanced but at the cost of rising interest expenses.
Complicating the situation is that most of the debt sits at the generating arm, while the most valuable part of the group is its regulated transmission arm, Oncor. This has led to suggestions that the owners will offer creditors the less attractive generating assets and hang on to Oncor.
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