It could be lights out for the biggest buyout in history. The $43.2 billion purchase of TXU by two private equity groups in 2007 looked brilliant at the time. Natural gas prices were expected to rise, driving wholesale power prices higher. That was especially good for TXU, which generates much of its electricity from lower-priced coal.
The fat margins that KKR and TXU envisioned when they put the deal together, though, never materialized. The recession and the proliferation of gas drilled from shale formations has pushed prices down by 50 percent since then. Now, pricing on credit-default swaps for TXU debt indicate a 91 percent chance of default in the next three years, Bloomberg reports.
The TXU deal has been on the rocks for a while, but the lower gas prices go, the worse the deal looks. Plenty of people, including the Billionaire Buyout Boys have taken tons of cash out of this deal along the way, of course.
TXU bondholders aren’t likely to be as lucky.What sounded like a good deal has failed to live up to the promises. In that sense, bondholders now know consumers have felt about deregulation for the past decade.