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.
“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.