TXU

  • 31 Jul 2007 at 9:30 AM
  • Banks

TXU Lenders Do The Math

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Funding a $37 billion buyout isn’t what it used to be, especially since debt on recent buyouts is losing up to 10% in value, sticking lenders with hefty losses. The lenders led by Citi and including Lehman, JPMorgan, Goldman and Morgan Stanley are considering paying a $1 billion break-up fee so that everyone can quietly walk away.
The proposed KKR, TPG and Goldman PE buyout of TXU calls for $30 billion of term loans and $11 billion in an unsecured bridge loan. Sharing a $1 billion loss is better than sharing a potential $3.7 billion loss (several analysts worked a 120 hour week to compute that). The banks are clever like that, at least in hindsight after offering such huge financing packages for these PE deals.
Thomson Financial reports that there is $300 billion worth of unfunded buyout debt currently threatening numerous impending PE deals like First Data.
Lenders mull pulling out of TXU and pay 1 bln usd break-up fee [Thomson Financial via CNN Money]

Credit Suisse Banker Charged With Insider Trading

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Insider-trading-ticker.jpgYesterday federal prosecutors charged Hafiz Muhammad Zubair Naseem, a Credit Suisse investment banker, with insider trading. He is accused of tipping off a banker in Pakistan with information about nine corporate acquisitions, including the TXU buyout.
It appears that Naseem was more or less a full-time insider trading professional, using his position—as well as his office phone—at Credit Suisse to obtain information about deals and leak them to his foreign contact from the very start. The SEC says he began his lawbreaking “[i]immediately upon obtaining employment at Credit Suisse in March 2006.”
But he doesn’t seem to have been especially clever about it. This wasn’t an elaborate system of dead-drops, or tips passed along through cut-outs. Naseem was simply calling his banker-buddy in Pakistan with the information. Did he really think he’d get away with that for very long? Apparently the answer is yes.
The good news is that Credit Suisse seems to have played a role in catching him. “We immediately brought the activities of this employee to the attention of the relevant authorities,” the Swiss bank said in a statement. Since this type of insider trading is basically theft from his employers and clients, it is good to see that Credit Suisse apparently helped uncover his alleged activities.
Naseem is 37 years old, and a Pakistani national. He worked for the Global Energy Group at Credit Suisse. In addition to TXU, Naseem is accused of passing along tips involving Hydril Co., Trammell Crow Co., John H. Harland Co., Energy Partners Ltd., Veritas DGC Inc., Jacuzzi Brands Inc., Caremark Rx Inc. and NorthWestern Corp. He is charged with one count of conspiracy and 25 counts of securities fraud.
Credit Suisse Employee Arrested, Charged With Insider Trading [Bloomberg]

  • 01 May 2007 at 10:05 AM
  • TXU

He [Wilder] Was Planning It All Along!

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john_wilder_callout.jpgSome of you may have lost sleep over that bit in Opening Bell this morning (yes, the highly prized 9:30 am-10 am nap), about TXU chief executive John Wilder getting a whopping $280 million upon the completion of the TPG buy-out. You were probably worried that TXU was going on one of its annual Let’s Stuff Money in Paper Bags and Light It On Fire-type spending sprees, were you not? Well worry no longer: turns out the Texans are actually quite stingy, particularly when it comes to their commander in chief. Deal Journal reports that Wilder’s bonus for 2006 was a measly $1.6 million bonus. And why was Wilder awarded less than Blankfein spent on sheets during the calendar year? Apparently, he only has himself to blame. The company noted in its SEC filing that “While [TXU] delivered record earnings per share and operating cash flow results in 2006, the company fell short of its incentive funding metrics relative to challenging goals approved by the Organization and Compensation Committee.” Basically, Wilder should take a long hard look in the mirror and think about what he’s done (or hasn’t done).
Or should he? The best part of this whole thing is that Wilder’s compensation is apparently low because the company failed to meet performance goals, and it was this under performance that hurt the share price and made TXU an inviting target for KKR-TPG. Enter: the $280 million. Fishy, indeed.
Wilder’s Barely Passing Grade at TXU [Deal Journal]

  • 27 Apr 2007 at 1:12 PM
  • TXU

TXU Wars

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From the looks of this video, things are heating up in Texas. The Star Wars credit sequence-style video seems to be aimed at pressuring the Texas legislature to oppose the buyout of the energy company TXU by KKR and the Texas Pacific Group. And it doesn’t pull its punches, comparing the deal to another famous Texas energy concern, Enron.

  • 18 Apr 2007 at 12:27 PM
  • KKR

With Two Weeks Left In Go-Shop Period, TXU Says It Expects No New Bids

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DAVID-BONDERMAN000 Wins.jpgIf the world seems a little bit brighter today that might be because you’re sitting somewhere near David Bonderman. The head of Texas Pacific Group is there in his suit—maybe it’s that wide-lapelled, sack-ish green number he likes to wear—his tie twisted, its front resting against his chest and its seam showing. (He’s not a slob but being Bonderman means having more on your mind than whether or not your tie rests just so.) And he’s probably smiling wide enough to throw light in a RIM blackout-sized radius. (Read: the whole western hemisphere.)
Texas power giant TXU Corp. has just announced that it is proceeding with plans to be bought out by Bonderman’s firm and Kohlberg Kravis & Roberts. Bonderman never really doubted the deal would go through but he had to smile when he got the news that with two weeks left in its “go-shop” period to look for other buyers, TXU was throwing in the towel and taking his bid. There was never much chance that serious rival bids would emerge for TXU. All those stories about Bonderman’s connections to the environmental groups supporting the buyouts, about behind the scenes deals with Texas lawmakers and regulators, no doubt sent the message to other private equity shops that
the fix was in. These guys had this deal wrapped up. No one else had the connections.
If that weren’t enough to stymie the ambitions of the Steve Schwarzman’s and Leon Black’s of the world, there were all the stories about resistance to the deal from greens, lawmakers and regulators. Who would want to step into that mess? The more trouble the TPG-KKR bid had, the less attractive the deal seemed to competitors. Worse was better.
In a sense it was all a bluff because the logic behind the TXU buyout has always been deceptively simple. The management of the power company had made itself too many enemies in Texas to succeed. It was partly bad public relations, partly a failure to build the right relationships, and partly an inevitable cost of running a power company in an age of rising energy prices, sprawling suburbs and growing environmental concerns. The management had become toxic.
A new management—under new owners—stood a chance to make the company work simply by not being the old guys. It was—it is—really that simple. The plan was to get rich by being someone else. In this case, by being David Bonderman.
TXU receives no superior offer and sticks with KKR [Reuters]

It Was The Brits Wot Did It: TXU’s First Insider Trading Case

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The first suspects have been named in the SEC’s investigation into the insider trading that is alleged to have occurred in the days leading up to the announcement of the giant TXU buyout deal. The Guardian reports on the husband and wife named by the SEC. No details yet on how they allegedly obtained the inside information.

Sunil Sehgal, director of a Wembley-based IT firm, Transputec Computers, and his wife Seema are the first people to be named in an investigation by the Securities and Exchange Commission , the Wall Street regulator, into unusual dealing in the run-up to TXU’s takeover in February. The SEC says there were “highly suspicious purchases of speculative call options” in TXU, partly made through the London branch of the investment bank UBS, yielding profits of $5.3m for an unknown number of people involved.

And today’s big First Data takeover? Deal Journal reports that there were lots of “funky movements” in the options and credit default swaps. More trouble ahead.

British couple named in US insider deal inquiry [Guardian]

  • 19 Mar 2007 at 9:07 AM
  • TXU

Crashing the TXU Party: Blackstone, Carlyle and Hellman & Friedman

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txu_map.gifPrivate equity firms Blackstone, Carlyle and Hellman & Friedman are considering a bid for TXU, the Texas energy company which accepted a buyout bid from rival private equity groups Kolbert, Kravis & Roberts and the Texas Pacific Group. The Financial Times broke the story early this morning, and later it was confirmed by a Reuters source.
From the FT:

A consortium of leading private equity groups has moved much closer to mounting a rival offer to trump the $45bn (£23bn) takeover of TXU, the Texas-based energy group, by Kohlberg Kravis Roberts and Texas Pacific Group.
If this consortium tables a formal offer for TXU, it could create a bidding war for the largest private equity deal on record.
It would also mark a milestone for competition among the world’s largest buy-out firms, which have so far rarely sought to break up each other’s deals.
According to people familiar with the matter, Blackstone, Carlyle and Hellman & Friedman may approach the TXU board with a proposal in coming weeks.

There’s a lot of skepticism about whether or not the Blackstone consortium would seriously challenge the bid from KKR and TPG. The size of the deal could make raising funds for the bid difficult—although the willingness of several large banks to go so far as to extend equity bridges to the buyer indicates that banks are hungry to get a piece of the TXU deal.
What really gives some observers pause is whether or not the Blackstone consortium would decide that it has a better plan than KKR-TPG for uncovering value in the company. One of the reasons private equity groups give for the lack of competition in buyout bids is that they seldom believe they can run the company better than their rivals.
But what makes this buyout different than many others is that it is essentially a non-financial, non-operational opportunity for private equity. Many of the problems of TXU are political–problems between the current management and environmentalists and lawmakers have hurt the performance of TXU’s stock and its ability to expand in Texas. The feeling is that the current management and ownership cannot possibly realize the full value of the company, and that there is some value to just being someone else. The throws an “x” factor into the mix by opening the possibility that the Blackstone consortium may believe it has even better relations with Texas environmentalists and lawmakers than KKR-TPG.
Rival looms in $45bn TXU bid{$$} [Financial Times]
Buyout firms mull rival TXU bid [Reuters]

  • 16 Mar 2007 at 9:34 AM
  • TXU

Trouble In Texas: State Senate Bill May Threaten TXU

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txu_map.gifThe Dallas Morning News reports this morning that Texas lawmakers have thrown a wrench into the TXU buyout, passing legislation that would strip the power company of some of it’s power plants and giving state authorities the right to approve the buyout by KKR and TPG.

The Senate approved legislation Thursday that would strip TXU Corp. of some of its power plants and increase state authority over TXU operations – including the right to approve the utility’s proposed $45 billion sale.
The unanimous Senate was reacting to reports earlier this week that TXU had manipulated the state’s wholesale electricity market to reap millions in additional profits.
The package of three bills would target high rates and other problems in the state’s residential electricity market, but the most dramatic effects would be felt by Dallas-based TXU, the largest power generator in Texas. All three bills now go to the House for consideration.
Sen. Troy Fraser, R-Horseshoe Bay, author of the measures, identified TXU as the main “perpetrator” of the problems that have troubled the state’s deregulated electricity market and forced action by the Legislature to correct those problems.


Limits on TXU fly through Senate [Dallas Morning News]

Channel Islander Accused of TXU Insider Trading

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SEC thinks it knows who was responsible for a huge chunk of the suspicious options trading that seemed to be based on insider information about the private equity buyout of Texas energy company TXU. As it turns out, it wasn’t one of the hundreds of people in Texas who were tipped off to the deal in advance–everyone from the local legislators to environmental activists seemed to have been consulted before the deal was announced. We’re not sure how they convinced that many people to not to talk or trade. But apparently when the Texas Pacific Group tells you to keep something quiet in Texas, you keep it quiet.

SEC attorney Jennifer Brandt told a judge during a status hearing Wednesday in Chicago that the commission learned the identity of the person from the Channel Island of Guernsey and the broker.
Brandt did not disclose the name of the person, who the SEC believes is responsible for the largest portion of the options trades.

SEC identifies one trader in alleged TXU insider trading [Dallas Business Journal]

  • 14 Mar 2007 at 1:44 PM
  • TXU

Equity Bridges To Nowhere?

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RainingMoney.gifIf you net out the moral outrage, Nicky “Von” Hoffman’s column on the financing for the KKR-TPG buyout of txu in today’s New York Observer does a good job of explaining the private equity-banking food chain. As Hoffman explains, bankers want fees from private equity firms, and they get some of the highest from arranging bond issuances. In order to get those bond deals, however, they’ve got to offer the private equity firms and the companies they buy all sorts of sweetheart deals, including bank loans on very favorable terms and equity bridges when the money isn’t quite there to get a deal done.

The first question is: Where did KKR and Texas Pacific get all the money? Successful as both entities have been in previous deal-making, buying this utility was a stretch. Left to their own preferences, you may assume that KKR and Texas Pacific would each have wanted to go solo, but the two investment funds obviously couldn’t come up with enough scratch to do it by themselves.
To swing the deal, which required $8 billion in up-front cash money, The New York Times reports, “Kohlberg Kravis and Texas Pacific are each putting up about $2 billion in cash. Goldman Sachs, Lehman Brothers, Morgan Stanley and Citigroup plan to invest $3 billion from their private equity firms.” That takes them to $7 billion—$1 billion shy of what they needed.
One more investor was required for that last billion. The last investor turns out to be J.P. Morgan Chase, Morgan Stanley and Citigroup. These same banks will be handling the $24 billion in loans that KKR and Texas Pacific need to finish paying for TXU. (The buyers are also taking on the $13 billion in debt that TXU already had, and that brings the total cost up to the $49 billion sale price.)
[Moralizing clipped]
The way to deal with such quibbles is to give this kind of loan a respectable-sounding name: Hence the term “equity bridge.” The idea is that, after the banks have bought their billion dollars’ worth of stock in the company, KKR and Texas Pacific are obliged to find somebody or some equity or hedge fund that will take the stock off the banks’ hands. Be that as it may, the “equity bridge” buy-in looks like a “pay to play” operation, as one Wall Streeter put it.
Pay-to-play has been a recurrent source of scandal in public financing. Whether what’s going on here is, legally speaking, pay-to-play is best left to the lawyers, but it stands to reason that if TXU’s bond business is restricted to insider-trackers, somebody’s going to lose out. If it isn’t the banks, the bondholders, or KKR and Texas Pacific, then the most obvious candidate will be whoever pays the household-utility bills.
The banks are willing to buy into a company they plan to lend money to because these bond deals are so lucrative. Last year, KKR alone, according to The Times, paid various banks fees amounting to $837 million. The banks will convert the loans they’re going to make to KKR and Texas Pacific into bonds, many of which will be sold, while some others will probably be kept in their vaults.

A Deal That Smells to High Heaven [New York Observer]

  • 08 Mar 2007 at 4:13 PM
  • KKR

We’re All Treehuggers Now?

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tpgtreehuggers.comWhen Holman Jenkins penned his now famous column on the TXU deal, even we were stunned by the depth of his cynicism. He clearly thinks the “treehugger” alarm being raised by those wondering if the environmentalists had captured the private equity firms that were buying the texas energy giant is just plain naïve. Obviously no ideological group had captured KKR or the Texas Pacific Group. They were still following the ideology they had always followed—the ideology of making as much money as possible—it just required a bit of greenery this time around. Indeed, Holman wrote that it wasn’t only the environmentalists who might end up regretting making the deal—it also seemed against the interests of Texas residents and taxpayers, as well as TXU shareholders.

One wonders, for instance, what the green groups are expecting to receive, indirectly, for their endorsement? It quickly emerged that TXU already had intended to spike six of the planned coal plants. Noticed too was the fact that TXU enjoys considerable market power in Texas. What’s going to stop rates from rising in the future as Texas outstrips the available power supply, especially with heavy restrictions on new coal plants? Good question. And, for TXU shareholders, don’t you get the feeling that the political phalanx behind the deal is meant to deter another bidder from beating what is perhaps, under the circumstances, a lowball offer?

The only flaw that Holman saw with the private equity ploy to dress up as environmentalists was that it was so obviously phony.

Now we’ll find out if these shrewd private equity operators are really any better equipped to deal with a relentlessly more politicized business environment than public companies have shown themselves to be. Once the buzz from Monday’s razzle-dazzle has worn off, don’t be surprised if the answer turns out to be “no.”

Well, maybe Holman underestimated the genius of private equity. Today we learned that a group called Environmental Defense—who are supporters of the private equity buyout—have hired Perella Weinberg Partners to advise them on the deal. When you can convince the environmental groups to start paying investment bank advisory fees, well, that clearly means you really are equipped to deal with a politicized business environment.
So maybe the headline to this item really should be “we’re all clients of investment banks now.”
Update: One the other hand, DealJournal wonders if maybe representing Environmental Defense in the TXU deal is a sign that Perella Weinberg might be getting a little desperate.

Private Equity Says ‘Like Us!’ [Wall Street Journal]
Environmentalists hire banker for role in TXU deal [Reuters]