So Paul Singer has mustered the bonds he needs to keep Texas Energy transmission company Oncor out of Warren Buffett’s hands. If this is a bluff, the Oracle of Omaha is calling it: Nine billion dollars and not a penny more for the troubled, red-ink-laden utility, and certainly not the 30 or 40 billion pennies more that Paul Singer wants.
Now, Paul Singer has a choice: Call Buffett’s bluff, or capitulate. The folks over at Breakingviews can’t imagine why he’d even consider doing the former.
If the fund voted to reject the offer, it would create risks for all creditors. Financing for Elliott’s alternative plan seems like a long shot, and there are no other bidders on the horizon…. Even for a distressed debt expert like Mr. Singer, holding a stake in a bankrupt utility with unhappy regulators would be a sticky outcome.
All true, but for it leaving out one crucial consideration: This is Paul Singer we’re talking about. Oncor parent Energy Futures Holdings has been on the rocks since its disastrous leveraged buyout in 2007 and subsequent bankruptcy filing in 2014. If Buffett should walk away, it would mark the third failed bid for EFH in three years—and really piss off those regulators, with whom the Berkshire offer has been the only offer to pass muster.
This is just the blink of an eye to Paul Singer. It probably seemed pretty crazy to almost literally go to war with a sovereign nation to force it to pay its debt—all of its debt, and not a peso less—and to remain there for 13 long years with perfect equanimity about whether or not it would ever happen. But he did, and it did. If he acquiesces to Berkshire’s offer, he’ll be taking a pretty big haircut on the face value of those EFH bonds. Not enough of a haircut to actually lose money on them, probably, but Paul Singer doesn’t have much hair left, and ask Cristina Kirchner what it’s like getting him into the barber’s chair. Three years? Paul Singer would probably be willing to wait out the annoyingly hirsute Buffett for 1,000.
Elliott Moves to Block Berkshire’s Oncor Bid; Buffett Stands Pat [WSJ]
Buffett’s Berkshire Hathaway will not increase its Oncor offer [Reuters]
In Battle Over Texas Utility, Elliott Is Grasping at Straws [Breakingviews via NYT]