TXU Bond Plunge Reaps $450 Mln Windfall

Company gets better deal on exchange offer after securities sell off on tax disclosure.

KKR & Co.’s Energy Future Holdings Corp., struggling to avoid default, is enjoying a $450 million windfall at the expense of bondholders.

Energy Future, formerly called TXU Corp. and taken private by KKR, TPG Capital and Goldman Sachs Capital Partners five years ago in the largest leveraged buyout, exchanged $1.15 billion of new notes last week for old ones with a face value of $1.6 billion. The move came after the old securities tumbled when the firm said in an Oct. 30 regulatory filing that it may be liable for $23 billion of taxable income if it cuts ties to units that default.

Sagging Fortunes

With its fortunes again sagging, Energy Future has been trying to extend maturities through debt exchanges, borrowed to pay off intercompany loans and made efforts to shield profitable assets from potential creditor claims in the event of a restructuring. Fitch Ratings said it’s likely the company may remove provisions in its bond indentures that would further protect those assets.

Exchange Premium

Energy Future issued the new bonds through its Energy Future Intermediate Holding Co. and EFIH Finance units, which sit between the parent and Oncor in the firm’s capital structure.

Buying Time

Energy Future also benefits from the ability to pay interest on the new bonds with additional debt, giving the company more time to improve its balance sheet, Mahajan said. The so-called payment-in-kind feature may save $360 million in interest costs over three years, helping boost liquidity to a level adequate until 2016, she wrote in a Dec. 5 report.

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