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Rating Action:

Moody's places B2 Corporate Family Rating of Energy Future Holdings Corp on review for possible downgrade

24 Feb 2009

Approximately $40 billion of debt affected

New York, February 24, 2009 -- Moody's Investors Service placed the ratings for Energy Future Holdings Corp (EFH) on review for possible downgrade, including the B2 Corporate Family Rating, B3 senior (guaranteed) unsecured and Caa1 senior unsecured ratings. In addition, the ratings for EFH's primary operating subsidiary, Texas Competitive Electric Holdings (TCEH) were also placed on review for possible downgrade, including the Ba3 senior secured first lien, B3 senior (guaranteed) unsecured and Caa1 senior unsecured ratings.

EFH's speculative grade liquidity rating (SGL) remains SGL-3, indicating an adequate liquidity profile over the near-term.

EFH's transmission and distribution utility subsidiary, Oncor Electric Delivery Company LLC's Baa3 senior secured rating and stable rating outlook were affirmed, primarily due to our interpretation of the ring-fence type provisions associated with that entity.

The review for possible downgrade primarily reflects the material decline in natural gas commodity prices, market heat rates and declining hedge effectiveness due to increased basis risk over the past several months, which in Moody's opinion, are negatively impacting the cash flow generating ability of TCEH, and ultimately, EFH. The current material degradation in macro economic factors combined with the declining fundamentals associated with weaker commodity prices, increases the risks associated with servicing over $40 billion of debt.

"We believe the current environment with respect to the economy and Texas market fundamentals were not anticipated by EFH's sponsors when they originally structured their leveraged buyout transaction," said Jim Hempstead, Senior Vice President. "With over $40 billion of total consolidated debt outstanding, we continue to incorporate a view that EFH does not have a lot of cushion or financial flexibility to meet unexpected challenges."

The review for possible downgrade will focus on an examination of EFH's disclosure in its pending 10K filing; the operating performance of its base load coal and nuclear generation fleet and the expectations for maintaining those operating levels over the near to intermediate term horizon; the weaknesses in a sizeable hedging program associated with market heat rates in North Texas and widening basis differential risks between the NYMEX natural gas price index and local natural gas hubs, both of which represent un-hedged risks; the construction status and likelihood for the timely start-up and operation of approximately 2 GW's of new lignite fired plants in Texas; and the implications associated with materially lower recovery prospects given the general estimated valuation declines experienced in the market (and most recently evidenced by EFH's $9 billion goodwill impairment charge).

"The severity of any rating downgrade will depend on a review of EFH's long term solvency and debt servicing prospects as a going concern" Hempstead added. "While a payment default may appear remote at this time given EFH's over-all current liquidity profile, we believe the likelihood of a distressed exchange has materially increased."

Moody's last rating action for EFH occurred on November 3, 2008, when the rating outlook was changed to negative from stable.

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.

On Review for Possible Downgrade:

..Issuer: Brazos River Authority, TX

....Revenue Bonds, Placed on Review for Possible Downgrade, currently Caa1

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently a range of Caa1, LGD5, 86%

..Issuer: Energy Future Holdings Corp.

....Probability of Default Rating, Placed on Review for Possible Downgrade, currently B2

....Corporate Family Rating, Placed on Review for Possible Downgrade, currently B2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently a range of B3, LGD4, 69%

..Issuer: Sabine River Authority, TX

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently a range of Caa1, LGD5, 86%

..Issuer: TXU Corp. (Old)

....Senior Unsecured Conv./Exch. Bond/Debenture, Placed on Review for Possible Downgrade, currently a range of Caa1, LGD6, 95%

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently a range of Caa1, LGD6, 95%

..Issuer: TXU US Holdings Company

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently a range of Caa1, LGD6, 91%

..Issuer: Texas Competitive Electric Holdings Co LLC

....Senior Secured Bank Credit Facility, Placed on Review for Possible Downgrade, currently a range of Ba3, LGD2, 29%

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently a range of B3, LGD5, 76%

....Senior Unsecured Sec. Lease Oblig. Bond, Placed on Review for Possible Downgrade, currently a range of Caa1, LGD6, 91%

..Issuer: Trinity River Authority, TX

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently a range of Caa1, LGD5, 86%

Outlook Actions:

..Issuer: Energy Future Holdings Corp.

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

..Issuer: Texas Competitive Electric Holdings Co LLC

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

New York
James Hempstead
Senior Vice President
Global Infrastructure 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

Moody's places B2 Corporate Family Rating of Energy Future Holdings Corp on review for possible downgrade
No Related Data.
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