Private Equity Firms Make Bad TXU Investment, Get $528 Million Anyway

The Texas-based energy company TXU was, under the Bush administration, supposed to be the cutting edge of a coal resurgence. The 2007 leveraged buyout of TXU is widely regarded to be one of the worst deals in private equity history. But the firms that led it -- KKR, TPG, and Goldman Sachs -- made money with big fees even as the company tumbled toward financial ruin.

"The 2007 leveraged buyout of TXU, a Texas-based energy company, is widely regarded to be one of the worst deals in private equity history.

The $45 billion acquisition -- led by KKR, TPG, and Goldman Sachs's private equity arm -- was timed horribly, right before the recession hit. In the ensuing years, TXU (which the buyers renamed Energy Future Holdings) lost billions of dollars as natural gas prices remained low and sales dried up, and the company was unable to pay down a massive $35 billion debt burden it had piled up as a result of the buyout. Recently, all kinds of investors -- including Warren Buffett, who called his investment in TXU a 'big mistake' -- have been running for the exits and declaring the deal an unmitigated disaster.

So, KKR, TPG, and Goldman lost all their money on TXU, right?

Wrong! In fact, Bloomberg reports that the private equity firms who led the TXU deal 'have paid themselves $528.3 million in fees, even as the electricity provider teeters toward a near-term bankruptcy or restructuring.'"

Kevin Roose reports for New York magazine October 23, 2012.
 

Source: New York, 10/23/2012