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Rating Action:

MOODY'S CONFIRMS Baa2 RATING OF TXU ENERGY, DOWNGRADES ONCOR TO Baa1 SECURED, CONFIRMS Baa3 OF TXU US HOLDINGS, LOWERS TXU GAS TO Baa3, AND DOWNGRADES TXU CORP. TO Ba1

13 Dec 2002
MOODY'S CONFIRMS Baa2 RATING OF TXU ENERGY, DOWNGRADES ONCOR TO Baa1 SECURED, CONFIRMS Baa3 OF TXU US HOLDINGS, LOWERS TXU GAS TO Baa3, AND DOWNGRADES TXU CORP. TO Ba1

Approximately $20 Bn of Securities Affected

New York, December 13, 2002 -- Moody's confirmed ratings assigned to TXU Energy at Baa2 sr. unsecured and downgraded the secured ratings assigned to Oncor Electric Delivery to Baa1 from A3. Moody's confirmed the Baa3 sr. unsecured rating assigned to TXU US Holdings' bank loans, and lowered its preferred stock rating to Ba2. Moody's lowered to Ba1 from Baa3 the senior unsecured rating assigned to TXU Corp. and lowered the rating assigned to Pinnacle One to Ba2. Moody's also downgraded the securities ratings of TXU Gas to Baa3 from Baa2. Moody's confirmed the Prime-2 rating for commercial paper assigned to programs established by Oncor Electric Delivery and TXU Energy.

The outlooks for TXU Corp. and for TXU Gas are negative; the outlooks for Oncor, TXU Energy and TXU US Holdings are stable. The outlook for the Baa2 rating assigned to TXU Australia is negative.

Moody's confirmation of TXU Energy's Baa2 ratings reflects its solid cash flow generation in relation to its debt. TXU Energy provides a source of free cash flow to its parent and has a controlled exposure to trading and marketing. Moody's lowered Oncor's secured rating by one notch to Baa1 to reflect inter-company funds flows from TXU Energy to Oncor. The flows result from regulatory requirements that TXU Energy make Oncor whole for costs involved in securitizing regulatory assets, and returning excess depreciation of generating assets to customers (the "excess mitigation credit".) In the first case, TXU Energy pays to Oncor funds to cover income taxes in the range of $30-40 million per year incurred upon securitization and in the latter case, TXU Energy pays to Oncor $350 million over two years through 2003. The lowering of the Oncor rating acknowledges the interdependency of these two companies. The senior unsecured ratings for Oncor and TXU Energy are now equivalent at Baa2.

Moody's confirmed the Baa3 rating assigned to bank loans extended to TXU US Holdings, the holding company for Oncor and TXU Energy. TXU US Holdings is the obligor of two credit agreements, the $1 bn 364 day facility which matures in April of 2003 (with a one-year term out) and the $1.4 bn term facility maturing in April of 2005. Oncor and TXU Energy each can borrow under the 364 day facility. TXU drew on both of these facilities in October to commence an orderly exit from the commercial paper markets following recent negative credit events. The rating for TXU US Holdings is notched down to Baa3 from the Baa2 assigned to its primary subsidiary, TXU Energy. Moody's lowered the $136 million of preferred stock issued by TXU US Holdings to Ba2 from Baa3 to reflect weaker priority of claims relative to the bank debt.

Downgrades of TXU Gas Company's ratings (sr. uns. from Baa2 to Baa3) reflect the company's persistent low profitability, and consequently, its poor returns and low debt coverage measures. Since being acquired by TXU Corp. in 1997, TXU Gas's results have consistently fallen below expectations. While TXU Gas has been slowly stabilizing its financial profile with modest revenue increases over the last few years, regulatory lag continues to suppress its margins and will likely be an ongoing issue.

Moody's lowered TXU Corp. to Ba1 from Baa3 given structural subordination to the bank loans at TXU US Holdings. Moody's notes management's intent to focus on debt repayment at the holding company over the medium term. In addition, the liquidity situation throughout the system is reasonable. Moody's discussed recent actions by management to reduce capital expenditures and cut the dividend in a November 18 press release. Since that time the company arranged a $1 bn stand-by facility for Oncor to cover maturing debt, issued $750 million of subordinated notes of TXU Energy, and issued $516 million of common stock equity. Moody's assigned a negative outlook to Corp. to reflect any potential litigation involving creditors of TXU Europe, the subsidiary which is now in administration.

Outlooks for Oncor, TXU Energy and TXU US Holdings are stable. The stable outlook assigned to Oncor assumes a successful refinancing of $700 million of bonds maturing in 2003 and final approvals by the courts of the company's plans to securitize $500 million of regulatory assets in 2003 and $800 million subsequently. The stable outlook for TXU Energy presumes that it remains capitalized with approximately 55% equity, 45% debt including the new $750 million subordinated debt investment.

The negative outlook for TXU Gas' ratings reflects that for TXU Corp., given its reliance on the parent for financial and other support. TXU Gas has no credit facility of its own and relies on advances from the parent for liquidity. The parent has been supportive of TXU Gas's financial position, recently providing equity that enabled TXU Gas to meet a $200 million debt repayment and to moderate its leverage (including trust preferreds as debt and excluding goodwill from equity) from the 80% range to the low 60% range.

TXU Corp. is a holding company for five major rated subsidiaries. It is headquartered in Dallas, Texas.

New York
John Diaz
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A. Tucker Hackett
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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