Energy Future Holdings ends Q1 with $3.4 billion of liquidity

By Paul Deckelman

New York, May 1 - Energy Future Holdings Corp. - the big Texas electric power generator and utility operator perhaps still better known in the financial world by its former name, TXU Corp. - ended the 2012 first quarter with $3.4 billion of liquidity, including the substantial revolving credit facility capacity it freed up using the proceeds from a junk bond mega-deal it did during the quarter.

The Dallas-based company's executive vice president and chief financial officer, Paul Keglevic, told analysts on a conference call Tuesday following the release of results for the quarter ended March 31 that liquidity increased following the issuance of $1.15 billion of new 11¾% senior secured notes due 2022.

The company's wholly owned Energy Future Intermediate Holding Co. LLC and EFIH Finance Inc. subsidiaries first priced a massively upsized $800 million issue of the 10-year senior secured second-lien notes on Feb. 1 at 98.535 to yield 12%, generating $788.28 million of proceeds. That quick-to-market deal was doubled in size from the originally shopped $400 million.

The same two entities then paid a return visit to the junk market a little more than three weeks later, on Feb. 23, pricing a quickly shopped $350 million tranche of the same notes at par. That deal was also upsized. The original size was $200 million.

Keglevic said that the parent used $950 million of the proceeds to repay a portion of the intercompany notes held by another subsidiary, Texas Competitive Electric Holdings Co. LLC. TCEH, in turn, then used those funds to repay all of the borrowings under its revolver.

The CFO said that the aggregate remaining intercompany note balance between Energy Future and TCEH at March 31 was $671 million.

The $3.4 billion of total liquidity included $1.14 billion of cash and equivalents on hand, $2.05 billion of availability under TCEH's newly replenished revolver and $198 million available under TCEH's letter-of-credit facility. The latter facility had $749 million of outstanding letters of credit and cash borrowings as of March 31.

Massive debt from LBO

According to Energy Future's 10-Q report filed Tuesday with the Securities and Exchange Commission, the company's balance sheet as of March 31 showed $36.49 billion of long-term debt, much of that issued in connection with the $45 billion leveraged buyout of the old TXU and its various subsidiaries by private equity firms Kohlberg Kravis Roberts, Texas Pacific Group and Goldman Sachs Capital Partners. That deal, which closed in October 2007, is believed to be the biggest such LBO on record.

About $29.3 billion of the total debt was held at the TCEH level, with the biggest portion of that being $15.35 billion of TCEH term loan facility debt scheduled to mature in October 2017. TCEH also has $3.8 billion of term loan debt coming due in October 2014. Its outstanding bond debt includes $1.83 billion and $1.29 billion of 10¼% notes issued in two series and due in November 2015, $1.56 billion of 10½%/11¼% PIK toggle notes due in November 2016, $1.75 billion of 11½% senior secured notes due in October 2020 and $336 million and $1.23 billion of 15% senior secured second-lien notes issued in two series and due in April 2021.

There was about $3.27 billion of outstanding debt at the parent level, including $1.06 billion of 10% senior secured first-lien notes due in January 2020.

Capital market plans?

During the question-and-answer portion of the call following the formal presentations by Keglevic and the company's president and chief executive officer, John Young, an analyst noted that according to the filing, the intercompany note has now been classified as a current liability - effectively meaning that the company plans to pay it off within the next 12 months. He wanted to know how Energy Future would balance that big obligation with paying cash interest on other parent company and subsidiary debt under its complex capital structure.

Keglevic answered that the "key word" is that "it's a balancing act, and obviously, we have remaining debt capacity up top, including $500 million of first-lien capacity. So I think it would be fair to assume that when we repay the intercompany note, we would also go out and have some additional capital market activity to raise some more funds so that we could stay in balance."

He added that "obviously, we're very conscious of having enough [of a] cash cushion up top to pay interest until such time as dividends and taxes grow."

He said that when a company lists a current liability in its financial statement, "that is based on a forecast of a balance that should exist based on that kind of activity."

He estimated the size of the cash cushion at the parent company as in the $800 million area.

Keglevic also told another questioner that Energy Future would not - and, in fact, could not - tell its majority-owned but independently structured and operated Oncor Electric Delivery Co. LLC subsidiary to cut back on its capital expenditures in order to upstream more cash to the parent company to help the latter meet its various obligations.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.