If I understand this correctly, KKR and Texas Pacific would do a leveraged buyout to try to improve performance and expand operations before possibly selling off to a new investor. I notice that TXU is $16 BILLION DOLLARS in debt. Even if the TXU board votes to do this, the buyout would have to be approved by Texas.

The purchase price is not yet final, the person said. Shares of TXU surged as high as $70 in after-hours trading, valuing the company at about $32 billion. With TXU's $16 billion in debt, the transaction may be worth more than $48 billion. Blackstone Group LP's purchase this month of Equity Office Properties Trust for $39 billion, including debt, was the largest previous buyout.

``An acquisition by KKR will be a blow to TXU's credit quality because leverage would increase substantially,'' said Sean Egan, managing director of Egan-Jones Ratings Co. in Haverford, Pennsylvania. ``Leveraged buyouts of utilities have been relatively rare.''

TXU shares have jumped sixfold since 2002, when failed expansions overseas helped push the company near bankruptcy. Chief Executive Officer C. John Wilder, 48, returned the company to a focus on electric generation and distribution in the Dallas region since taking over in February 2004. The company's credit is rated Ba1 by Moody's, one level below investment grade.

So, what does this do for the company, or for, uh, say, those SERVICED by TXU (besides the stockholders, because, hey, baby, the stock prices sure went up over this.

Oregon in March 2005 rejected a purchase of Portland General Electric by Fort Worth, Texas-based Texas Pacific.

``Regulators frown upon leveraged buyouts because it increases the riskiness of the utility and their ability to service their customers,'' Egan said.

Credit Risk

Credit-default swaps based on $10 million of TXU's bonds rose $770 to $84,380 as of 4:30 p.m. today in New York, according to London-based CMA Datavision. It was the first increase since Feb. 14. A rise in the cost of the contracts, used to speculate on a company's ability to repay debt, signals deterioration in the perception of credit quality.

More from the FW Star-Telegram

The industry has been driven by institutional investors, such as big pension funds, seeking higher returns than have been available in the stock market in recent years. The billions flowing into the funds, however, have prompted worries that the investment firms are overpaying for companies and will see their returns suffer -- or turn into losses.