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Rating Action:

Correction to text, March 31, 2009 Release: Moody's downgrades Energy Future Holdings Corp; Outlook is negative

02 Apr 2009

Approximately $37 billion of bank facilities and debt securities affected

New York, April 02, 2009 -- Moody's Investors Service inadvertently withdrew the ratings of several debt securities at Energy Future Holdings Corp. The following securities are rated Caa2 (LGD6, 92%): $3.6 million 4.800% Global Notes due 11/15/2009; $1,000 million Global Notes due 11/15/2014; $750 million Global Notes due 11/15/2024, and; $750 million 6.55% Global Notes due 11/15/2034.

Revised Release Follows.

Moody's Investors Service downgraded the Corporate Family Rating (CFR) and Probability of Default Rating (PDR) for Energy Future Holdings Corp (EFH) from B2 to B3. EFH's speculative grade liquidity rating (SGL) is confirmed at SGL-3, indicating adequate liquidity over the next four quarters. These rating actions conclude the review for possible downgrade that was initiated on February 24, 2009. The rating outlook is negative.

EFH's rate-regulated transmission and distribution utility subsidiary, Oncor Electric Delivery Company LLC's Baa3 senior secured rating and stable rating outlook were not affected by these rating actions, primarily due to our interpretation of the ring-fence type provisions associated with that entity.

EFH's B3 Corporate Family Rating (CFR) reflects a high business and operating risk profile, extreme amounts of leverage and limited financial flexibility. The company's ability to generate enough cash flow to service its approximately $37 billion of total consolidated debt (excluding Oncor debt) has been negatively impacted by current weak commodity prices and market heat rates and the prospect for a near-term recovery increasingly appears remote, at this time.

"EFH's business model does not appear to be sustainable over the long-term horizon given its leverage, its debt service requirements, exposure to commodity prices and limited financial flexibility," said Jim Hempstead, Senior Vice President. "Current market conditions are well below the company's original expectations when they sized the debt associated with their leveraged buy-out, and it appears that EFH will increasingly find it challenging to earn their way out of the current adverse headwinds the company faces."

Although the SGL-3 rating is confirmed, Moody's is somewhat concerned over our expectations for the company to be materially free cash flow negative over the next twelve to eighteen months at both the consolidated EFH level as well as at the TCEH level, depending on various Moody's assumptions, which will need to be funded by additional draws on the existing liquidity facilities and cash balances. Although EFH has modest scheduled debt maturities over the next few years, there is the possibility of a sizeable IRS audit settlement payment that is expected to be made over the next 24 - 36 months, based on our interpretation of the 10K disclosure regarding their participation in settlement negotiations. As a result, EFH will increasingly need to rely on upstream cash distributions from both Oncor and TCEH to service its parent company obligations. EFH's estimated current annual cash uses at the parent level, which include parent-only cash interest expenses, corporate over-head and sponsor-management fees, are estimated to be approximately $0.5 billion. Over the near-term, Oncor is expected to contribute a material amount of cash in the form of up-stream dividends and tax payments, within the range of various regulatory restrictions, with the remainder expected to come from TCEH.

TCEH's collateral commodity facility expires in December 2012, and is not expected to be renewed. The revolver expires in October 2013 and its senior secured term loan facilities expire in October 2014. Combined, the bank facilities create a material refinancing risk for EFH given current economic and financial conditions, and give rise to significant uncertainty surrounding the LBO-sponsor group's exit strategy plans. While still some distance in the future, these expiration dates are viewed negatively in light of recent market developments, which include a material transmission build-out program to facilitate incremental renewable energy supplies (Texas' CREZ program), thereby potentially depressing power prices in North Texas, and the prospects for some form of carbon dioxide emission regulations, which could potentially erode future margin expectations starting in 2012.

The negative outlook reflects EFH's weak business fundamentals, extreme leverage, asset concentration, reduced liquidity availability and complex hedging strategies. Moody's believes additional negative rating actions are more likely than not over the next 12 to 18 months. Additional negative rating actions could materialize if, for example, the new coal-fired generation facilities fail to operate at expected capacity factors in a timely manner or if natural gas prices continue to decline from current levels, thereby impacting expected cash flow.

We incorporate a view that EFH will likely need to take some form of action that addresses its cash flow, liquidity and maturity challenges over the intermediate-term horizon, possibly through a debt for equity exchange, maturity extension or other transaction. Any such actions will likely be viewed by Moody's as a "distress exchange" although we note that management has, to date, continued to assert that they are not contemplating any such action.

The rating outlook could be changed to stable and rating upgrades could materialize if the market fundamentals in Texas (ERCOT) changed materially and lasted for a sustained period of time. Nevertheless, EFH appears to be in an extremely weak financial state and has very little financial flexibility, making the likelihood of rating upgrades remote.

Moody's last rating action for EFH occurred on February 24, 2009, when the Corporate Family Rating was placed on review for possible downgrade. For more information, please refer to Moody's credit opinion under www.Moodys.com.

EFH's ratings were assigned by evaluating factors believed to be relevant to its credit profile, such as i) the business risk and competitive position of EFH versus others within its industry or sector, ii) the capital structure and financial risk of EFH, iii) the projected performance of EFH over the near to intermediate term, and iv) EFH's history of achieving consistent operating performance and meeting financial plan goals. These attributes were compared against other issuers both within and outside of EFH's core peer group and EFH's ratings are believed to be comparable to ratings assigned to other issuers of similar credit risk.

EFH is a large merchant generation company and retail electric provider operating in Texas. EFH is headquartered in Dallas, Texas.

The ratings for EFH, TCEH and EFHC's individual securities were determined using Moody's Loss Given Default (LGD) model. Based on EFH's B3 CFR and PDR, and based strictly on the priority of claims within those entities, the LGD model would suggest a rating of Caa2 for EFH's senior unsecured (guaranteed) debt. The Caa1 rating assigned reflects the fact that the holders of these securities also benefit from an upstream guarantee from Oncor's intermediate subsidiary holding company. Ratings changes are as follows:

Downgrades:

..Issuer: Brazos River Authority, TX

....Revenue Bonds, Downgraded to Caa2 from Caa1

....Senior Unsecured Revenue Bonds, Downgraded to Caa2 from Caa1

....Senior Unsecured Revenue Bonds, Downgraded to Caa2 from Caa1

..Issuer: Energy Future Holdings Corp.

....Probability of Default Rating, Downgraded to B3 from B2

....Corporate Family Rating, Downgraded to B3 from B2

....Senior Unsecured Regular Bond/Debenture, Downgraded to a range of Caa1, LGD5, 78% from a range of B3, LGD4, 69%

..Issuer: Sabine River Authority, TX

....Senior Unsecured Revenue Bonds, Downgraded to Caa2 from Caa1

..Issuer: Texas Competitive Electric Holdings Co LLC

....Senior Secured Bank Credit Facility, Downgraded to B1 from Ba3

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1 from B3

....Senior Unsecured Sec. Lease Oblig. Bond, Downgraded to Caa2 from Caa1

..Issuer: Trinity River Authority, TX

....Senior Unsecured Revenue Bonds, Downgraded to Caa2 from Caa1

Upgrades:

..Issuer: Brazos River Authority, TX

....Senior Unsecured Revenue Bonds, Upgraded to LGD5, 83% from LGD5, 86%

..Issuer: Sabine River Authority, TX

....Senior Unsecured Revenue Bonds, Upgraded to LGD5, 83% from LGD5, 86%

..Issuer: Texas Competitive Electric Holdings Co LLC

....Senior Secured Bank Credit Facility, Upgraded to LGD2, 27% from LGD2, 29%

....Senior Unsecured Regular Bond/Debenture, Upgraded to LGD5, 71% from LGD5, 76%

....Senior Unsecured Sec. Lease Oblig. Bond, Upgraded to LGD5, 83% from LGD6, 91%

..Issuer: Trinity River Authority, TX

....Senior Unsecured Revenue Bonds, Upgraded to LGD5, 83% from LGD5, 86%

Assignments:

..Issuer: Brazos River Authority, TX

....Revenue Bonds, Assigned 83 - LGD5

....Senior Unsecured Revenue Bonds, Assigned 83 - LGD5

..Issuer: Sabine River Authority, TX

....Senior Unsecured Revenue Bonds, Assigned a range of 83 - LGD5 to Caa2

Outlook Actions:

..Issuer: Energy Future Holdings Corp.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Texas Competitive Electric Holdings Co LLC

....Outlook, Changed To Negative From Rating Under Review

Confirmations:

..Issuer: Energy Future Holdings Corp.

....Speculative Grade Liquidity Rating, Confirmed at SGL-3

New York
James Hempstead
Senior Vice President
Global Infrasstructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Correction to text, March 31, 2009 Release: Moody's downgrades Energy Future Holdings Corp; Outlook is negative
No Related Data.
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