Fitch Downgrades IDRs of Energy Future Holdings Corp, EFIH, & TCEH Following Chapter 11 Filing

NEW YORK--()--Fitch Ratings has downgraded the Issuer Default Ratings (IDR) of Energy Future Holdings Corp (EFH) and Energy Future Intermediate Holding Company LLC (EFIH) to 'D' from 'CC'. Fitch has also downgraded the IDRs of Texas Competitive Electric Holdings Company LLC (TCEH) and Energy Future Competitive Holdings Company (EFCH) to 'D' from 'C'. The ratings for Oncor Electric Delivery Company LLC (Oncor) are unaffected by today's rating actions. Oncor is not part of the Chapter 11 filing.

Fitch plans to withdraw its ratings for EFH and related entities (excluding Oncor) following a 30-day period. This advance notice is provided for the benefit of users in managing their use of Fitch's ratings.

KEY RATING DRIVERS

Bankruptcy filing: The rating actions follow yesterday's announcement that EFH, EFIH, EFCH and TCEH have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy code.

Recovery ratings: The individual security ratings at TCEH and EFH/EFIH are notched above or below the IDR, as a result of the relative recovery prospects upon default.

Fitch values the power generation assets at TCEH using a net present value (NPV) analysis. Fitch uses the plant valuation provided by its third-party power market consultant, Wood Mackenzie, as an input as well as Fitch's own gas price deck and other assumptions. The generation asset NPVs vary significantly based on future gas price assumptions and other variables, such as the discount rate and heat rate forecasts in ERCOT.

Fitch's valuation of TCEH's generation fleet at approximately $12.9 billion reflects a value of approximately $1,600 per kilowatt (kw) for the nuclear units, $900/kw for the coal fleet, and $500/kw for the natural gas plants. Fitch values TXU Energy at $2.5 billion using an EV/EBITDA multiple of 5x. Fitch does note that natural gas prices are a key variable that drives the valuation of TCEH's power generation assets. According to Fitch's estimates, every $1/MMBtu move in natural gas prices can drive an approximately $500 million variance in TCEH's EBITDA beyond 2014. Fitch's recovery valuation results in 51%-70% recovery for TCEH's first-lien debt and no recovery for junior debt holders. There is no change in the 'CC/RR3' rating for TCEH's first lien debt and 'C/RR6' rating for junior debt as a result of TCEH's IDR being downgraded to 'D'.

Fitch's assessment of the collateral valuation at EFH/ EFIH continues to depend solely on the value of Oncor Electric Delivery Holdings Company LLC's (Oncor Holdings) 80% ownership interest in Oncor. Fitch values Oncor Holdings' proportional interest in Oncor at $7.5 billion by using an 8.5x EV/EBITDA multiple and Oncor's expected 2015 EBITDA of $1.8 billion. Fitch's recovery analysis yields a 100% recovery for both the first-lien and second-lien debt. As a result of the downgrade to the IDRs of EFH and EFIH, Fitch has downgraded EFIH's first lien and second lien debt to 'CCC/RR1' from 'CCC+/RR1'. Fitch has also downgraded EFH's senior guaranteed notes, EFIH's senior toggle notes due 2018 and EFIH's senior secured notes due 2019 to 'CC/RR3' from 'CCC-/RR3'. Fitch revised the Recovery Ratings of EFH's legacy notes and senior notes due 2019 and 2020 to 'C/RR4' from 'C/RR6' based on the expectation of a higher concession payment, in accordance with the pre-arranged plan reached between EFH and certain key creditors.

RATING SENSITIVITIES

Change in Oncor's Valuation: Any change in Fitch's assessment of the valuation of Oncor due to reasons such as change in regulatory environment, any restriction placed on upstream dividend distribution, a change in electric sales outlook, etc., could lead to a change in Recovery Ratings for EFH/EFIH's debt instruments.

Commodity Price Changes: The debt instrument ratings for TCEH could be upgraded or downgraded depending upon Fitch's long-term view of power prices in ERCOT, which forms a key assumption for TCEH's recovery analysis.

Increased Retail Competition: Rising competitive intensity in the retail markets in Texas could lower the value that Fitch ascribes to TXU Energy, thereby lowering the recovery values for TCEH's senior secured first lien debt.

Fitch downgrades the following ratings:

EFH

--IDR to 'D' from 'CC';

--Senior unsecured guaranteed notes to 'CC/RR3' from 'CCC-/RR3'.

EFIH

--IDR to 'D' from 'CC';

--Senior secured first lien debt to 'CCC/RR1' from 'CCC+/RR1';

--Senior secured second lien debt to 'CCC/RR1' from 'CCC+/RR1';

--9.75% notes due 2019 to 'CC/RR3' from 'CCC-/RR3';

--Senior toggle notes to 'CC/RR3' from 'CCC-/RR3'.

EFCH

--IDR to 'D' from 'C'.

TCEH

--IDR to 'D' from 'C'.

Fitch affirms the following ratings:

EFCH

--Senior unsecured notes at 'C/RR6'.

TCEH

--Senior secured first lien debt at 'CC/RR3';

--Senior secured second lien debt at 'C/RR6';

--Senior unsecured notes at 'C/RR6';

--Unsecured pollution control bonds at 'C';

--Lease facility bonds at 'CC/RR3'.

Fitch affirms the following ratings and revises the Recovery Ratings as follows:

EFH

--9.75% notes due 2019 to 'C/RR4' from 'C/RR6';

--10.000% notes due 2020 to 'C/RR4' from 'C/RR6';

--Senior unsecured non-guaranteed notes to 'C/RR4' from 'C/RR6'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013);

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Recovery Ratings and Notching Criteria for Non-financial Corporate Issuers' (Nov. 19, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721836

Additional Disclosure

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Contacts

Fitch Ratings
Primary Analyst
Shalini Mahajan, CFA
Senior Director
+1-212-908-0351
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Philip Smyth, CFA
Senior Director
+1-212-908-0531
or
Committee Chairperson
Glen Grabelsky
Managing Director
+1-212-908-0577
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Shalini Mahajan, CFA
Senior Director
+1-212-908-0351
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Philip Smyth, CFA
Senior Director
+1-212-908-0531
or
Committee Chairperson
Glen Grabelsky
Managing Director
+1-212-908-0577
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com