Energy Future Holdings, subject to the largest PE buyout in history, owes its creditors $270 million today. The scheduled payment is a rounding error compared to its aggregate debt obligations, which total $43.6 billion. Bought out by KKR, TPG and Goldman Sachs for $48.1 billion in 2007, the company has been mulling whether to make the payment or file for Chapter 11 bankruptcy, which would suspend the bond payments. Fidelity Investments, one of the company’s creditors, reportedly hired advisors recently to come up with a restructuring plan that could stave off the potential bankruptcy filing.
Energy Future isn’t the only PE-backed company with big debt payments coming up. Investors piled mountains of debt onto portfolio companies during the mega-buyout era of 2006 and 2007, which has more than a few observers worried. Josh Kosman, a prominent critic of the private equity industry, went so far as to predict in his 2009 book "The Buyout of America" that private equity debt loads would create another credit crisis. So did the Boston Consulting Group, which predicted that almost half of all PE-controlled companies could default by the end of 2011. The Bank of England warned earlier this year that private equity debt could trigger a financial crisis in the U.K., as well. “A refinancing challenge [is] looming in 2014,” The Guardian wrote in March, “because the peak in debt issuance was in 2007 and the average maturity of leveraged buyout debt is seven years.”
2011, thankfully, didn’t usher in any more credit crises. Nor did 2012, and 2013 still appears healthy. Are we still on the cusp of another financial meltdown caused by private equity, or have we avoided it altogether?