1. How does the post-closing holding company structure protect the interests of the financial sponsor group, creditors, and the utility’s customers, employees, and other stakeholder groups?
2. What was the purpose of the pre-closing covenants and closing conditions as described in the merger agreement?
3. Loan covenants exist to protect the lender. How might such covenants inhibit EFH from meeting its 2014 $20 billion obligations?
4. As CEO of EFH, what would you recommend to the board of directors as an appropriate strategy for paying the $20 billion in debt that is maturing in 2014?
5. In the fourth quarter of 2008 and first quarter of 2009, EFC Holdings recorded goodwill impairment charges of about $8 billion. The substantial write-down of the net acquired suggests that the purchase price paid for TXU was too high. How might this impact KKR, TPG, and Goldman’s abilities to earn financial returns expected by their investors on the TXU acquisition? How might this write-down impact EFH’s ability to meet the $20 billion debt maturing in 2014?

Valued at $48 billion, the 2007 buyout of TXU, a Dallas-based energy giant, is the largest private equity deal in history. To complete the deal, an investor group moved aggressively to get approval from major stakeholders, including shareholders, consumers, legislators, regulators, environmentalists, and lenders. The buyout was a bet that the price of natural gas would continue to climb, benefiting the firm’s natural gas revenues. However, the price of gas plummeted along with the U.S. economy, eroding TXU’s cash flow. Since the transaction closed in October 2007, investors who bought $40 billion of TXU’s bonds and loans have experienced large losses. Most of the bonds were trading between 70 and 80 cents on the dollar during most of 2010. The other $8 billion used to finance the deal came from private equity investors, banks, and large institutional investors. While the firm met its debt service obligations in 2010, it faces a $20 billion debt repayment coming due in 2014.