They had 2 children, Rex and Randy.
Bebe Buell explains on her book "Rebel Heart" (p. 163):
My last two months of pregnancy [May and June 1977] were the toughest [...] While I was seeing Steven, Todd was in Texas with the new woman in his life, Bruce springsteen`s ex-girlfriend a tall, slender red-head named Karen Darvin.
When Todd played Texas, Karen was in Dallas mending her broken heart with her parents. However, she not only felt up to seeing Todd`s Utopia show; she mustered enough energy to go backstage and put the wounded-bird touch on Todd. Something clicked beteen them. I later discovered that after Dallas, their torrid affair played in several other Texas cities. Naturally, I suspected nothing, since Todd was covering his tracks with dutiful calls and flights home for a few days here and there. [...] Todd and I were not together that much during the last months of my pregnancy because he had already met the woman with whom he would end up having two sons. I think he had fallen genuinely in love with Karen [...]"
On July 1st 1977 baby Liv was born and Todd took care of her as if he was his father and moved with Bebe Buell again. However, when Bebe had her child "He left the delivery room and hoofed it over to a nearby hotel, where he had temporarily parked Karen for his convenience. The next day I called everyone I knew to help me locate him [...] Finally, he staggered into maternity ward at 7:00 P.M. on July 2nd".
Shortly after Liv was born, Bebe and Steven meet, and he asked her "So, Beeber, who`s the readhead with Todd?" I was stunned (tells Bebe in her memoirs book), WHat do you mean, `who`s the redhead?` What redhead?", "You know, the one who was hangin` on to him at the show we did in Ohio last week. Tall, skinny redhead. They were definitely together. I thought you should know." My heart sucked into my stomach.
"In the 1980s, Todd and Michelle had moved to a beautiful big house in Sausalito, just over the Golden Gate Bridge from san Francisco, in Martin County. He kept Karen, the mother of his sons Rex and Randy, in a house next door. He is the only man I`ve ever met who lives with more than one woman and makes it work."