Suddenly TXU’s $32 billion leveraged buyout seems so last spring.
Shareholders, to be sure, voted on Friday to approve the sale of the utility to Kohlberg Kravis Roberts & Co. and TPG. Under the deal, the buyers plan to borrow as much as $37.4 billion and assume about $13 billion in existing debt.
Amid the worldwide credit crunch, however, the deal has a certain nostalgic quality to it. Thus, while TXU, a predictable utility, is an attractive commodity for an LBO, the buyout may prove to be the last megadeal among the rapidly waning batch.
Indeed, more than $380 billion of loans and bonds linked to pending LBOs need to be converted from short-term bridge loans, according to the current issue of The Economist. Such loans typically have a 30-to-60-day holding period.
Such conversions seemed to be slam dunks when credit was widely available earlier this year. Now they’ve become an immense source of worry, as uncertainty hovers over the answer to the question of whether there’s enough liquidity in the credit markets to absorb such a huge volume of issuance in a short period of time. That situation could spell a world of trouble for the banks that extended the short-term financing, since they would be stuck with the loans if they can’t find longer-term financing.