Moody's: Investor buyout could result in deep downgrade for TXU

Moody's Investors Service said the proposed acquisition of TXU Corp. by a consortium of private equity investors will likely lead to a period of aggressive financing that could make TXU a deeply speculative-grade rated company.

"We believe private equity investors do not represent natural long-term owners of the businesses and assets of TXU. Accordingly, we believe the company will exhibit a very high tolerance for financial risk through the aggressive use of leverage to boost near-term returns," Moody's vice president and senior credit officer Jim Hempstead said in an agency rating.

In general, the agency said leveraged buyouts of utility companies encompass an extraordinarily high amount of execution risk and introduce transaction event risk that could have devastating effects on a company's credit profile. Moody's believes that negotiations with regulatory and legislative authorities may be protracted and may lead to changes in the transaction as proposed and that TXU's financial profile is likely to deteriorate materially even if the announced transaction is not completed.

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