Market Skeptical About TXU Deal

Swaps suggest buyout faces 91% odds of default.

The bond market has never been more pessimistic on the chances of KKR & Co. and TPG Capital being able to salvage the biggest leveraged buyout in history -- the $43.2 billion purchase in 2007 of the electricity provider known then as TXU Corp.

Since the private equity firms bought the Dallas-based company, now known as Energy Future Holdings Corp., with $45 billion in debt financing, natural gas prices have tumbled 50 percent as a process for extracting the fuel from shale called fracking rises in popularity. That has cut electricity prices in half as well.

Price Hedges

Hedges that contributed to one-time gains of $89 million last quarter by locking in natural gas prices expire by 2015, according to the company’s most recent quarterly filing with the U.S. Securities and Exchanges Commission. The hedges lock in natural gas at a weighted average price of about $7.36 for 2012, compared with a weighted average market price of $4.24.

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