Fitch downgrades Energy Future, Texas Competitive

Fitch Ratings said it lowered the issuer default rating of Texas Competitive Electric Holdings Co. LLC (TCEH) to CC from CCC and removed the negative outlook.

Due to inter-company linkages, Fitch said it also downgraded the IDRs of Energy Future Holdings Corp. (EFH), Energy Future Intermediate Holding Co. LLC (EFIH) and Energy Future Competitive Holdings Co. (EFCH) to CC as well.

The IDR and security ratings of Oncor Electric Delivery Co. LLC are unaffected by the rating actions.

Based on an updated recovery analysis that reflects a lower valuation for both Luminant and TXU Energy and reflecting the one-notch downgrade to the IDR, the security ratings for the first-lien senior secured debt are downgraded to CCC/RR3 from B/RR2. The ratings are affirmed for the second-lien senior secured debt at C/RR6; guaranteed unsecured notes at C/RR6; and non-guaranteed unsecured notes at C/RR6.

Fitch has updated its recovery analysis for EFH/EFIH and now assumes a higher valuation for Oncor.

The security ratings for the first-lien senior secured debt are downgraded to B from B+, reflecting the one-notch downgrade to the IDR. The recovery rating for the first-lien debt remains at RR1.

The ratings are affirmed for the second-lien senior secured debt at B, albeit at a higher RR1 versus prior RR2); guaranteed unsecured notes at CCC, albeit at higher RR3 versus prior RR4; and non-guaranteed unsecured notes at C/RR6.

The downgrade to Texas Competitive Electric Holdings' IDR is driven by a further sharp deterioration in the company's business outlook over the last few months such that the current highly leveraged capital structure is no longer sustainable and some kind of default seems inevitable, in Fitch's view.

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