Buyout Firms Clash Over Energy Future Holdings, the Biggest-Ever LBO

Private equity firms and hedge funds are fighting over the carcass of Energy Future Holdings, a Dallas-based power company on the verge of bankruptcy. KKR, Goldman Sachs Capital Partners, and TPG Capital, which led the $48 billion leveraged buyout of what was called TXU in 2007, may end up with less than 3 percent of their initial investments.

The buyout group is negotiating with Energy Future’s senior creditors, including Apollo Global Management and Centerbridge Partners, which are poised to seize control of the company. A prolonged battle could leave less for creditors. “We see bigger potential for value leakage if this bankruptcy restructuring turns highly contentious, highly litigious, and disorganized,” says Jim Hempstead, an analyst at Moody’s Investors Service.