Biggest Buyout Gone Bust Dims Megadeal Outlook

Energy Future’s bankruptcy is likely to reshape the way buyout firms do business.

The failure of Energy Future Holdings Corp., known as TXU Corp. when KKR & Co., TPG Capital and Goldman Sachs Capital Partners acquired it for $48 billion in 2007, and the stumbles of other huge deals of the past decade have reshaped how major buyout firms go about their trade.

The Dallas-based utility’s bankruptcy yesterday ended the biggest leveraged buyout on record and will wipe out most of the $8.3 billion of equity that investors led by three of the world’s largest private-equity firms sank into the company.

Valuations Fall

For years it was the fallout of the financial crisis, rather than a reconsideration of deal-making practices on the part of private-equity firms, that put a halt to the biggest deals. Debt financing for LBOs all but evaporated in 2008, when speculative-grade corporate loan issuance in the U.S. fell to $157 billion from a then-record $535 billion in 2007, according to S&P’s Capital IQ. It wasn’t until November 2011 that a corporate buyout once again topped $7 billion in size.

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