Warren Buffett bet Energy Future collapses

Its investors loaded the company with debt in the belief that natural gas prices would rise, and that Energy Future would easily be able to meet its commitments. However, it proved to be a wrong way bet, as “fracking” technology allowed energy companies to tap into shale reserves, and sent the price of natural gas falling. Energy Future’s debts now far outweigh its assets, which total $36.4bn.

On Tuesday, Energy Future’s chief executive, John Young, thanked its creditors for agreeing to its proposals to write off some of the debt by restructuring the company.

“We are pleased to have the support of our key financial stakeholders for a consensual restructuring. We fully expect to continue normal business operations during the reorganisation,” he said.

Under the proposals, Energy Future will carve off Texas Competitive Electric, a major subsidiary which sells power at wholesale to major companies, in order to wipe $25bn of debt off its slate. It has also held discussions with a group of creditors owed around $1.7bn, about handing them a stake in another of its subsidiaries - Energy Future Intermediate Holding Company - instead of cash. The unit in question includes Oncor, a regulated energy supplier that serves around 10m customers across Texas.

However, carving the company up in this way could push Energy future’s debts even higher. Some analysts and investors fear that the company would have to pay more than $7bn in taxes if it separates its regulated and unregulated businesses, although Energy Future insists this is not the case.

Earlier this year, Mr Buffett, the billionaire investor famed for one of the most successful track records in history, described his $2bn investment in Energy Future bonds as a “big mistake”. Its private equity backers have already written down their $8.3bn investment in the business.

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