Buffett regrets $2B bet on Texas utility
Warren Buffett says Energy Future Holdings will almost certainly file for bankruptcy this year unless natural gas prices surge.
The billionaire investor is only the latest to predict that the Dallas company — which owns billions in Texas electric utility assets — is headed for bankruptcy, weighed down by more than $41 billion in debt.
It would make for one of the largest debt-laden bankruptcies of a non-financial company since the 1980s if its bank account ran dry this year, Moody’s Investors Service had said in September. Buffett did not wait to find out
His investment firm Berkshire Hathaway ate $873 million in pre-tax losses last year when it sold its stake in the company, originally a $2 billion chunk of debt in 2007 in one of the largest leveraged buyouts in history.
“That was a big mistake,” Buffett wrote in Berkshire’s annual report, released Saturday. The firm sold its holdings for $259 million last year after earning $837 million in interest on its bonds over the last seven years.
“Most of you have never heard of Energy Future Holdings,” Buffett said. “Consider yourselves lucky; I certainly wish I hadn’t.”
Seven years ago, a group of private equity giants including KKR and TPG Capital had believed electricity prices would surge and lift profits for the parent company of retail electricity provider TXU Energy.
They took the company private for more than $45 billion — a big portion of the sum was debt — but natural gas prices nosedived in 2011 and 2012 amid the national shale gas boom.
U.S. natural gas prices have climbed up from their lowest point two years ago, but most analysts expect it will move between $3.50 and $4.50 per million British thermal units over the next two decades.
But Energy Future Holdings has said a bankruptcy would not interrupt the flow of electricity to Texas customers.
“While we can’t speak to Mr. Buffett’s investment decisions, we are extremely proud of our operational record,” Energy Future Holdings spokesman Allan Koenig said in an email.
The highlights: 1,900 jobs added to the payroll since 2007 and $10 billion spent for capital expenditures, Koenig added.
The billionaire investor is only the latest to predict that the Dallas company — which owns billions in Texas electric utility assets — is headed for bankruptcy, weighed down by more than $41 billion in debt.
It would make for one of the largest debt-laden bankruptcies of a non-financial company since the 1980s if its bank account ran dry this year, Moody’s Investors Service had said in September. Buffett did not wait to find out
His investment firm Berkshire Hathaway ate $873 million in pre-tax losses last year when it sold its stake in the company, originally a $2 billion chunk of debt in 2007 in one of the largest leveraged buyouts in history.
“That was a big mistake,” Buffett wrote in Berkshire’s annual report, released Saturday. The firm sold its holdings for $259 million last year after earning $837 million in interest on its bonds over the last seven years.
“Most of you have never heard of Energy Future Holdings,” Buffett said. “Consider yourselves lucky; I certainly wish I hadn’t.”
Seven years ago, a group of private equity giants including KKR and TPG Capital had believed electricity prices would surge and lift profits for the parent company of retail electricity provider TXU Energy.
They took the company private for more than $45 billion — a big portion of the sum was debt — but natural gas prices nosedived in 2011 and 2012 amid the national shale gas boom.
U.S. natural gas prices have climbed up from their lowest point two years ago, but most analysts expect it will move between $3.50 and $4.50 per million British thermal units over the next two decades.
But Energy Future Holdings has said a bankruptcy would not interrupt the flow of electricity to Texas customers.
“While we can’t speak to Mr. Buffett’s investment decisions, we are extremely proud of our operational record,” Energy Future Holdings spokesman Allan Koenig said in an email.
The highlights: 1,900 jobs added to the payroll since 2007 and $10 billion spent for capital expenditures, Koenig added.
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