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27 March 2007 -- Moody's Investors Service said in a report that TXU Corp.'s proposed acquisition by a group of private equity investors will likely lead to a "period of aggressive financing" that could make the power provider a "deeply speculative-grade rated company."
Texas Energy Future Holdings Limited Partnership, a holding company formed by Kohlberg Kravis Roberts & Co., Texas Pacific Group and other investors to acquire TXU, agreed last month to buy the electric utility.
At the time, the partnership said it would assume more than $12 billion in debt. Dallas-based TXU later said its purchasers hadlined up $24.6 billion in debt financing to complete the deal.
Moody's said in its report that TXU's financial profile will "likely deteriorate materially" even if the deal is not completed. The rating agency sees "drawn-out negotiations" with regulatory and legislative authorities that may lead to changes in the proposed transaction.
Last week leveraged-buyout superstars Henry Kravis and David Bonderman made a personal appeal to salvage the proposed TXU acquisition, as they differed with Texas lawmakers over the role of state regulators in approving the deal.
Lawmakers are considering legislation that could slow or derail the deal by making TXU smaller and forcing it to seek approval for the sale from the Public Utility Commission.
"We view the board of directors' acceptance of the buyout as a clear indication of the company's bias toward meeting shareholder needs to the obvious detriment of bondholders," Jim Hempstead, Moody's vice president and senior credit officer, said in a statement.
The board has shown a willingness to apply a higher degree of financial risk to the company than Moody's was previously incorporating into its ratings assessment, he added.
The acquisition in its current state would likely cause the credit ratings of TXU and several of its subsidiaries to be downgraded one or more notches, the agency said.
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