Berkshire Said to Reduce Its Energy Future Bond Stake

Bloomberg November 25, 2013 0

Warren Buffett ’s Berkshire Hathaway Inc. reduced its holdings of Energy Future Holdings Corp. debt by a third after the Texas power provider made an interest payment and staved off a bankruptcy filing, according to a person with knowledge of the transaction

Berkshire Hathaway Chairman Warren Buffett

Warren Buffett’s Berkshire Hathaway
Inc. reduced its holdings of Energy Future Holdings Corp. debt
by a third after the Texas power provider made an interest
payment and staved off a bankruptcy filing, according to a
person with knowledge of the transaction.

Berkshire sold about $615 million of its $1.8 billion in
face value of Texas Competitive Electric Holdings Co.’s senior
unsecured notes this month, said the person, who asked not to be
identified because the transaction was private. The Omaha,
Nebraska-based company had taken more than $1.9 billion in
writedowns from 2010 through the third quarter of this year,
“substantially all” of which was related to Texas Competitive
bonds, according to regulatory filings on its website.

Texas Competitive’s $1.83 billion of 10.25 percent bonds
due November 2015, which paid a coupon on Nov. 1, traded at
9.125 cents on the dollar on Nov. 8, the highest level since
July, from 1.87 cents on Sept. 25, according to Trace, the bond-price reporting system of the Financial Industry Regulatory
Authority. The debt traded at 7.125 cents on Nov. 22.

Buffett, chairman and chief executive officer, didn’t
immediately return a message left with an assistant seeking
comment. Adam McGill, a spokesman for the Dallas-based
electricity generator, declined to comment.

Energy Future’s most senior lenders, who lost their claim
to $270 million that the company paid out in interest Nov. 1,
are poised to cede more cash as it prepares to make about $390
million in additional payments to other debtors through March,
according to data compiled by Bloomberg. Auditors may then raise
doubts about its ability to remain a going concern, which would
trigger a default, according to debt researcher CreditSights
Inc.

‘Good Trade’

“If you told me somebody’s getting 7, 9 cents on the
dollar for senior unsecureds, to me that’s a good trade,” Peter Thornton, an analyst at Montpelier, Vermont-based research firm
KDP Investment Advisors Inc., said in a telephone interview.

KKR & Co., Goldman Sachs Capital Partners and TPG Capital
took the former TXU Corp. private in 2007 in a record $48
billion leveraged buyout, an investment predicated on rising
natural gas prices. Instead, prices fell as the development of
hydraulic fracturing created a surge in U.S. gas supplies,
triggering 10 straight quarterly losses at the company since
2011.

Buffett described his $2 billion investment in Energy
Future bonds as “a big mistake” in his annual letter to
shareholders in February 2012. Berkshire wrote down its
investment in Energy Future by $390 million in 2011, following a
$1 billion impairment in 2010, Buffett said in the letter.

To contact the reporter on this story:
Mary Childs in New York at
mchilds5@bloomberg.net

To contact the editor responsible for this story:
Alan Goldstein at
agoldstein5@bloomberg.net

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