That engineer guy you linked to is the wisest writer on the Internet today! ;)

So if EFH goes belly up, the bankrutpcy court will let the current management run the operations while the bond holders get pennies on the dollar and the stockholders get zip.

Texas Pacific and KKR will have stolen a lot of money from the suckers and the widows and orphans. The current construction projects will be abandoned or delayed. Wonder how much TARP funds get consumed by their bankers?

Guess that was just another payday on Wall Street.

Here’s a link to the “deal”

http://www.tpg.com/news/080208_deal_txu.pdf

Note the connection between environmentalists and Texas Pacific. Of course, the owners created their own bargaining chip by proposing a massive new fleet of dirt burners (lignite plants) that they could scrap as a trade-off.

I had a different thread on STP 3 and 4 recently Whitehall and one of the main engineers commented on the thread and it was interesting. I am ALL FOR nuclear power, unfortunately, it just ain’t happening.

http://chicagoboyz.net/archives/10601.html

You should check out that thread.

TXU as a regulated public utility probably had the standard capital allocation of 50% equity and 50% debt. That was the compromise every state settled on following the electric holding company scandals of the late 1920s.

Any idea what EFH’s capital split is? I bet its pushing 20/80.

As to Comanche Peak 3 and 4, look to the Japanese vendor to take some sort of equity stake in them just like the other Japanese vendor did for STP 3 and 4. MITI is bankrolling market penetration strategies for their nuclear suppliers similar to their earlier efforts for electronics and automobiles.

If they can find a way to push off their debt coming due in the next few years because there is new financing available this will give them time to figure out how to make enough case to restructure their balance sheet.

As far as their new nuclear plant, I wouldn’t count on it. I have a ton of posts (look under Energy or click on the post above) for my posts on the difficulties of getting anything done in that sector.

But they certainly could come through and turn out to be a good investment, I don’t know. I do know that having a giant utility like this with such huge leverage and a private owner is new for the industry and may have unknown impacts if factors work against them.

Note that TXU largely serves the Dallas/Ft. Worth market and has plans for a 2 unit Mitsubishi nuclear plant to join the existing two reactors at Comanche Peak through EFH’s Luminant subsidiary. However, I don’t see that project having a high burn rate yet.

http://www.luminant.com/about/default.aspx

Part of their problems lie in the must-take provisions for wind power. With a state’s renewables mandate of 20% of capacity (or production, I was never clear which), the expensive and unreliable wind farms push down capacity factors for the coal and gas plants that all utilities use for intermediate and peak loads. They claim to the largest purchaser of wind electricity in Texas.

Looking at their last SEC filing (http://phx.corporate-ir.net/phoenix.zhtml?c=102498&p=irol-sec) it looks like they are taking hits on low commodity prices and reduced distribution demand.

Plus they have a very large exposure for carbon dioxide restrictions since they burn so much lignite coal.

In summary, EFH is highly levered for a utility, is exposed to Federal cap and trade legislation, and is suffering from a demand downturn.

Their bonds look a bargain to me. Texas electric demand will pick up before most of the country and cap and trade is dead. With a steady hand at the wheel, I’d expect them to come through hard times without too much risk.