Rubenstein’s Carlyle Group buys Texas Competitive debt

New York Post – by Josh Kosman

The collapse of a giant Texas utility is bringing out the inner vulture of private-equity mogul David Rubenstein.

Rubenstein’s Carlyle Group, through its Claren Road hedge fund, snapped up debt in Energy Future Holdings’ Texas Competitive power plants at a steep discount before it went bust last month — hoping to make money when the restructuring played out, sources said.  

For Carlyle to make a big distressed-debt play is a major departure for the firm.

Rubenstein’s DC-based powerhouse prides itself on responsible, growth-oriented investing — and had distanced itself from “bottom feeder” PE shops that invest in distressed debt.

Still does.

But the pressure is growing for publicly traded PE giants, like Carlyle, to diversify because it’s getting harder to find mega-deals while still delivering outsized returns. And that is what led Rubenstein’s Carlyle to Texas.

Right now the buyout shop is most likely in the red on its EFH investment. Under the proposed restructuring, Carlyle-controlled Claren and other holders of $2.7 billion in unsecured notes stand to collect $100 million, or just 4 cents on the dollar.

Dallas-based EFH filed for bankruptcy April 29 after months of negotiations with its creditors. A powerful group of lenders has already signed on to a deal to break up the utility.

But Carlyle’s Claren and the other unhappy holders of Texas Competitive unsecured debt are planning a major power play that they hope will boost their recovery prospects and force the company to deal with them on a restructuring strategy, sources said.

In the case of EFH, Carlyle’s Claren, Cyrus Capital Partners and other unsecured creditors will likely lay claim to some of the assets held by EFH’s state-regulated sister company, Oncor, said the sources.

Oncor, a power plant, did not file for bankruptcy.

The creditors will argue that certain power lines and towers were illegally transferred to Oncor as the heavily indebted holding company careened toward bankruptcy, according to sources.

The move will pit Carlyle against equally powerful PE rivals — Apollo Global Management, led by billionaire Leon Black, and Oaktree Capital Management — that bought more senior Texas Competitive debt on the cheap.

The holders of the senior debt are eager to avoid a bankruptcy free-for-all.

Under the current proposal, KKR, TPG and the PE arm of Goldman Sachs, which took EFH private in a record-breaking $45 billion deal in 2007, will be essentially wiped out.

Carlyle’s Claren will also claim that some of the roughly $300 million EFH paid in management fees to its PE owners before the bankruptcy were illegal transfers, a source said.

Carlyle declined to comment.

Meanwhile, creditors led by Apollo will gain control of Texas Competitive. And another creditor group — led by Marc Lasry’s Avenue Capital — will take possession of Oncor’s holding company.

The creditors that stand to take control of the company want to avoid a long, drawn-out bankruptcy.

They are betting that power prices in Texas have bottomed out and are poised to rise soon — a boon to the bankrupt company.

http://nypost.com/2014/05/25/rubensteins-carlyle-group-buys-texas-competitive-debt/