Fitch Cuts TXU Ratings

NEW YORK (AP) – Fitch Ratings on Monday cut TXU Corp.'s long-term issuer default rating to reflect the financial structure being created to pay for the $32 billion leveraged buyout of the Texas electric provider.

The credit agency lowered its rating on the Dallas-based company and subsidiary Texas Competitive Electric Holdings LLC to “B” from “BB+” while upgrading its negative outlook to stable. Fitch considers “BB” and “B” to be at the high end of non-investment grade, or junk, bonds.

TXU is being bought by an investment group led by private equity firms Kohlberg Kravis Roberts & Co. and TPG, formerly Texas Pacific Group, at a time when financing for similar mega-deals has all but dried up. The buyers plan to borrow $24.6 billion against TXU to finance their purchase. Including debt, TXU values the deal at $46.7 billion.

Fitch said the downgrade “reflects the significant debt leverage and weak cash flow coverage ratios that will result” from the deal, which is expected to close Wednesday.

Shares of TXU rose 25 cents to $69.15 Monday morning.