Moody's puts Energy Future Holdings on bankruptcy watch

Moody's Investors Service, one of the Big Three credit rating agencies, has given Energy Futures Holdings Corp. until the end of the year before the energy company declares for bankruptcy protection and restructures itself.

In an analysis of its own call, Moody's says this would be one of the top 10 largest non-financial corporate bankruptcies in the U.S. since the 1980s. In terms of debt, it could be one of the biggest of all time, ranking with Enron, WorldCom, General Motors and Chrysler. The holding company reportedly has more than $41 billion in debt.

The electric utility company's assets include a power generation portfolio that consists mostly of nuclear energy and coal-fired power (through Luminant), a power transmission business (through Oncor Electric Delivery) and a retail power provider (through TXU Energy).

The company was bought out in 2007 in what was at the time one of the largest leveraged buy-outs in history when a group of Wall Streeters (including Goldman Sachs, KKR and TPG Capital) paid $45 billion for what was then known as TXU Energy.

The idea was that even though the private equity firms that bought up TXU would be taking on a significant amount of debt, the notoriously unstable price of natural gas would surely soon peak, helping the financiers turn a profit. As we now know, this hoped-for spike did not occur, and instead we saw sustained record-low prices for natural gas. The gamble also anticipated that coal-fired electricity would remain inexpensive and high-profit. Hindsight, as they say, is 20/20.

Energy Future Holdings has been carrying a large amount of debt for some time now, leading analysts to speculate about its future. Moody's downgraded the company's credit rating from Caa1 to B3 in August 2013.

From the end-user's perspective, should the worst happen for EFH, the power will continue to flow because of a survival blueprint already plotted out back in April 2013. One potential bankruptcy restructuring plan would forgive billions in debt owned by Luminant in exchange for a large share of the company. The investors, in this scenario, would get the short end of the stick — an estimated return of 50 percent or less. However, subsidiaries like Oncor and Luminant could be preserved.

You can read more about that debt restructuring plan in this story.