Posts Tagged ‘Private equity’

If you think that bonuses are supposed to reward success, you’re not alone, but the reality is more bizarre.  While Energy Future Holdings, formerly TXU, of Dallas continues its downward spiral toward bankruptcy, it’s handing out millions in bonuses to its executives.

The bonuses are called retention bonuses and are supposed to keep executive from fleeing the company as its prospects worsen.  At first glance, that makes some sense.  Recruiting replacements might be difficult.  After all, who is going to want to take charge of a failing company?  But then, who would want to hire an executive whose last job was running a company that failed so spectacularly?  And if bonuses increase as the company does worse, what incentive is there to improve performance?  Against the basic principle of capitalism, this system actually provides an incentive to fail.

Meanwhile, Energy Future Holdings is still making huge payments to the private equity holders that are responsible for over leveraging the company in the first place.  Henry Roberts Kravis, CEO of KKR received $30 million and his cousin and co-CEO, George Roberts received $29.9 million in compensation for 2011.  Clearly, the survival of Energy Future Holdings is not the main concern of either these private equity barons or the executives at the company, or else they wouldn’t be squeezing personal profit out of it when it’s floundering.

While employees at Energy Future Holdings and its subsidiaries may be worrying about what the future holds, those at the top are cashing in big.  No government payments or loans to the company or altering of the energy market will change that dynamic.

Don’t let your money be used to line the pockets of failing executives and private equity CEOs.

If you live in Texas, please sign our petition urging all Texas Legislators to oppose any public or ratepayer-funded bailout of Energy Future Holdings

Read Full Post »

No Bailout for Energy Future HoldingsEnergy Future Holdings, formerly TXU, of Dallas might be looking for a handout – from you.

Back in January, Moody’s changed Energy Future Holdings Corp’s rating outlook to negative and made it impossible to ignore what anyone who had been paying attention to the company’s quarterly reports already knew: Energy Future Holdings is on a path heading towards bankruptcy.  Now there are rumors floating around that the company may ask the Texas Legislature to approve a public or ratepayer-funded bailout.

Neither option would benefit majority of Texas citizens and we urge everyone to sign our petition in opposition to any bailout proposal for Energy Future Holdings

You might wonder how the profitable TXU end up as the failing Energy Future Holdings.  The answer is twofold.

First, in Texas, electricity prices are set based on the price of natural gas.  When natural gas prices were high, this meant that coal-fired power plants could reap additional profit.  This made TXU an attractive acquisition because the company owned many coal-fired power plants.  But now, natural gas prices have plummeted and those same coal-fired power plants, especially the oldest and most inefficient, are dragging Energy Future Holdings down.  The private equity investors made a big bet on the wrong energy source.

The second problem is that Energy Future Holdings was acquired in a leveraged buyout.  What that means is that instead of the investors paying the full amount to buy TXU, they financed the deal partially through loans to the company.  While the company has done a good job of staving off the day of reckoning by refinancing many of those loans, many are approaching maturity and additional refinancing options are limited by the negative prospects for the company.

So, while TXU was a profitable company with relatively low debt, Energy Future Holdings is an unprofitable company (because of low natural gas prices) with massive debt (because of the leveraged buyout) that is approaching maturity.  This isn’t a good combination and some people are going to lose money on the deal (many already have).  However, those losses shouldn’t be placed on Texas taxpayers or ratepayers.

Tell your state representatives and senators that you oppose bailing out failed corporations.

Most of us have to live with the consequences of our bad decisions.  Help us make sure that Wall Street and private equity firms must do the same.

Read Full Post »