In 2007, Kohlberg, Kravis, Roberts (KKR) and Texas Pacific Group (TPG) teamed up with Goldman Sachs Capital Partners to buy TXU Corporation. The deal was valued between $45 to $48 billion with an $8 billion equity investment and the rest in debt. The secured (backed by collateral) bonds are trading at 86 cents on the dollar and the unsecured bonds are trading at 55 cents. Total debt is $36 billion. KKR has marked its equity investment at $1.6 billion, an almost unthinkable 80% discount. Last week, the credit default swaps tripled in price. $22.5 billion of debt is due in 2014. To pay back this large sum, the company, now called Energy Future Holdings Corporation can sell assets, have an IPO or ask current debtholders to trade their bonds for new bonds that have a later maturity date. The catalyst for the fall in bond and rise in swaps prices was a claim by a hedge fund, Aurelius Capital Management, that the company technically defaulted on an intercompany loan i.e. loan between the parent and a subsidiary.
The company is not generating as much revenue and cash as was projected during the formation of the leveraged buyout because the price of gas is about $4 (per million British Thermal units.) To pay off the loans, gas has to be between $7-$8.
There are two articles about TXU Corporation: one at the Wall Street Journal and one at the New York Times.
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