When Energy Future Holdings files for bankruptcy, the two private equity firms that engineered the $45 billion buyout of the former TXU Corp. are expected to see their stake reduced to virtually nothing.
But what might be devastating for other financial firms has done little damage to KKR & Co.’s and TPG’s positions as the private equity titans of Wall Street.
According to experts and private equity insiders, the two firms managed to minimize the hit to their balance sheets and reputations through a strategy to shrink their exposure and that of their investors if the 2007 buyout went south.
The firms put only a fraction of their own money into the deal. They collected hundreds of millions in fees along the way. And their investors made money even when losses at EFH started piling up.
“It gives them a black eye. But it’s in the context of one bad investment, and they have many other good investments,” said Don Shelly, a professor at SMU’s Cox School of Business. “They’re going to take a hit, but they were smart enough to syndicate it out and not take too big a piece themselves.”