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Rating Action:

Moody's Places the Ratings of TXU Corp and Subsidiaries on Review for a Possible Downgrade

26 Feb 2007
Moody's Places the Ratings of TXU Corp and Subsidiaries on Review for a Possible Downgrade

Approximately $13 Billion of Debt Securities Affected

New York, February 26, 2007 -- Moody's Investors Service has placed the ratings of TXU Corp. (Ba1 senior unsecured) and its primary operating subsidiaries, TXU Electric Delivery Company (Baa2 senior unsecured) and TXU Energy Company LLC (Baa2 senior unsecured), on review for possible downgrade. The ratings for TXU US Holdings Company (Baa3 senior unsecured) have also been placed on review for possible downgrade.

The review for a possible downgrade is a reaction to the company's announcement that it has agreed to be acquired by a consortium of private equity investors, including Kohlberg, Kravis Roberts & Co (KKR), Texas Pacific Group, and Goldman Sachs among others. The review for possible downgrade reflects our expectation that the financial profile of TXU will experience a significant increase in leverage associated with the proposed acquisition and that the key financial credit metrics, which include ratios of cash flow to adjusted total debt, will deteriorate meaningfully.

"There is a reasonable possibility that a multi-notch downgrade may occur at one or more of TXU's rated entities" said Jim Hempstead, Vice President, "including both operating subsidiaries, TXU Electric Delivery and TXU Energy."

TXU's strong financial profile has been a key factor underpinning the company's rating, given its over-all business and operating risks. For the latest twelve months ended September 2006, Moody's calculates a cash flow to adjusted total debt ratio of approximately 35% on a consolidated basis and a retained cash flow to adjusted total debt ratio of over 20%. These metrics are considered appropriate for a high Ba-rating given that a majority of the revenues, earnings and cash flow are produced by quasi-regulated business activities.

"Moody's expects a significant amount of regulatory and legislative scrutiny for this transaction" said Hempstead "so the execution risks associated with closing are going to be relatively high."

TXU and TXU Energy could be at the greatest risk for a multi-notch downgrade. TXU Energy is a wholly-owned subsidiary of TXU US Holdings, an intermediate holding company of TXU Corp, and owns roughly 18GW of generation capacity, almost half of which are base-load coal and nuclear fired, and owns an electric supply business that serves approximately 2 million customers.

TXU Electric Delivery is the entity most likely to experience the least amount of negative rating action. TXU Delivery's review for possible downgrade reflects our expectation that the private equity consortium will seek some form of divestiture or sale of the company, and that the structure may result in a modest deterioration of key financial credit metrics. However, Moody's also believes that any divestiture structure will include some form of regulatory approval -- either explicit or implicit -- and that the Public Utility Commission of Texas (PUCT) approval process will likely be rigorous. As noted in our rating methodology for Global Electric Utilities, the Texas regulatory environment is viewed as being reasonably supportive to credit. "To the extent that TXU Delivery is able to maintain its key financial credit metrics at current levels, the ratings could conceivably be affirmed" said Hempstead "But it is our expectation that the metrics will be coming down, thereby prompting the review for downgrade."

TXU Corp. is headquartered in Dallas, Texas.

On Review for Possible Downgrade:

..Issuer: Brazos River Authority, TX

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Sabine River Authority, TX

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: TXU Capital I

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently Ba2

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Ba2

..Issuer: TXU Capital III

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Ba2

..Issuer: TXU Capital IV

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Ba2

..Issuer: TXU Corp.

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently (P)Ba3

....Senior Unsecured Conv./Exch. Bond/Debenture, Placed on Review for Possible Downgrade, currently Ba1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Ba1

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)Ba1

..Issuer: TXU Electric Capital IV

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently Baa3

..Issuer: TXU Electric Capital V

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently Baa3

..Issuer: TXU Electric Capital VI

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: TXU Electric Capital VII

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: TXU Electric Capital VIII

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: TXU Electric Delivery Company

....Issuer Rating, Placed on Review for Possible Downgrade, currently Baa2

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently Ba2

....Senior Unsecured Commercial Paper, Placed on Review for Possible Downgrade, currently P-2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa3

....Senior Unsecured Sec. Lease Oblig. Bond, Placed on Review for Possible Downgrade, currently Baa3

..Issuer: TXU Energy Company LLC

....Issuer Rating, Placed on Review for Possible Downgrade, currently Baa2

....Senior Unsecured Commercial Paper, Placed on Review for Possible Downgrade, currently P-2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: TXU US Holdings Company

....Issuer Rating, Placed on Review for Possible Downgrade, currently Baa3

..Issuer: Trinity River Authority, TX

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently Baa2

Outlook Actions:

..Issuer: TXU Capital I

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

..Issuer: TXU Capital III

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

..Issuer: TXU Capital IV

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

..Issuer: TXU Corp.

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

..Issuer: TXU Electric Capital IV

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

..Issuer: TXU Electric Capital V

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

..Issuer: TXU Electric Capital VI

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

..Issuer: TXU Electric Capital VII

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

..Issuer: TXU Electric Capital VIII

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

..Issuer: TXU Electric Delivery Company

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

..Issuer: TXU Energy Company LLC

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

..Issuer: TXU US Holdings Company

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

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

New York
James Hempstead
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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