All fracked up

6 April 2011 By Agnes Crane

Partly to quiet an agitating hedge fund, KKR and TPG want to rejig a $20 bln loan that funded the record LBO of the Texas power giant in 2007. But pushing maturity from 2014 to 2017 would make repayment a bet on U.S. natural gas prices. That’s a wager lenders needn’t make yet.

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A subsidiary of Energy Future Holdings, formerly known as TXU Corp, is asking its lenders to amend and extend debt, including a $20 billion secured loan used to finance its leveraged buyout in 2007, according to a regulatory filing on April 1.

Lenders have until April 7 to agree to the amendments and until April 12 for the maturity extension.

They are being asked to amend a covenant to give the company greater financial flexibility while agreeing that a controversial intercompany loan does not violate existing loan terms, as hedge fund Aurelius Capital Management contends it does. They are also being asked to extend the final maturity date of the loan to 2017 from 2014.

Lenders who agree to the changes will be paid fees and, in the case of the extension, a higher interest rate. CreditSights estimates the TXU subsidiary will have to borrow an additional $1.6 billion to pay for the changes.

Kohlberg Kravis Roberts, TPG Capital and Goldman Sachs acquired TXU, then a public company, in 2007 for $45 billion including debt.

Since then hydraulic fracturing, known as fracking, has uncovered a potential 50 years' supply of natural gas in the United States. In 2007, U.S. gas prices hovered above $8 per million British thermal units. Today, the price is around $4.75. In Texas, as in some other parts of America, the cost of gas is the main driver of the marginal price of electricity and hence the profitability of generators, regardless of the fuel they use.

Energy Future Holdings filing

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Lenders have until April 7 to agree to the amendments and until April 12 for the maturity extension.

Kohlberg Kravis Roberts, TPG Capital and Goldman Sachs acquired TXU, then a public company, in 2007 for $45 billion including debt.

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