Fitch Ratings Downgrades TXU Corp & Subsidiaries; Rating Outlook Changed To Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 12, 2002

Fitch Ratings downgrades TXU Corp.'s (TXU) senior notes to 'BBB-', preference stock 'BB+', and commercial paper to 'F3' from 'BBB', 'BBB-', and 'F2', respectively. Also downgraded were the outstanding ratings on TXU US Holdings (US Holdings), Oncor Electric Delivery Co. (Oncor), TXU Energy Co. LLC (TXU Energy), TXU Gas Co. (TXU Gas), Pinnacle One Partners, L.P. (Pinnacle One), TXU Australia Holdings (Partnership) Limited Partnership (TXUA) and TXU Electricity Limited as outlined below. The Rating Outlook of all the companies listed above has been revised to Stable from Negative.

The downgrade of the parent, TXU, takes into account TXU's already high leverage and the increased debt burden resulting from recent borrowings under new financing arrangements and existing credit facilities to maintain liquidity for potential collateral calls or accelerated repayment of debt associated with Pinnacle One Partners, and the related increase in interest expense. Fitch expects that TXU will have to maintain large cash reserves for an extended period as a precaution against potential collateral calls or accelerated maturities, pushing up the cost of capital and potentially delaying a needed reduction in debt leverage. The Stable Outlook for TXU and the maintenance of investment grade ratings recognize the existence of sufficient liquidity to meet expected refinancing and potential collateral requirements, after the painful but necessary decision to terminate support for TXU Europe, resulting in the ailing subsidiary going into administration. The Stable Outlook for TXU also factors in Fitch's view that TXU Corp. will not have a material liability for TXU Europe obligations.

The single-notch downgrades of the ratings of TXU Energy, Oncor, TXU Gas, TXU Australia, and TXU Electricity Limited reflect the lower parent company rating, consistent with Fitch's policy on the relationship of subsidiary ratings to those of the parent. The ratings of TXU Gas, TXU Australia, and TXU Electricity Limited, all lowered to 'BBB-', previously depended upon the premise that the subsidiaries would receive continuing parental support from TXU Corp. While Fitch believes that support will continue, the ratings are now at levels consistent with the companies' individual credit profiles.

The two-notch downgrade of US Holdings, an intermediate holding company that is parent to Oncor and TXU Energy, brings this rating to the same level as its parent at 'BBB-'. That approach is consistent with Fitch's view that US Holdings is a conduit through which the cash flows of the US subsidiaries pass on their way upstream to the parent company. TXU Energy's senior unsecured debt rating, lowered to 'BBB' from 'BBB+', incorporates Fitch's view that currently high margins earned by retail power suppliers in Texas are likely to moderate over time if price competition becomes more prevalent in that market, though this is not an immediate concern.

Ample liquidity has been put in place to meet and exceed all anticipated needs of the parent and US affiliates. Management estimates that collateral for contractual counterparties would be on the order of $635 million if TXU Energy were downgraded by any one or two rating agencies to below investment grade and $905 million in the event of such action by all three rating agencies. A substantial portion of the collateral relates to non-trading obligations, including leases and long-term power contracts that are not sensitive to commodity price risk. Downgrade of TXU Corp. to below investment grade by any one agency to the equivalent of 'BB' or lower would occasion a put of $810 million of notes of Pinnacle One Partners. TXU Corp. and its US affiliates have estimated combined cash and available liquidity to meet these needs of approximately $1.9 billion after allowing for the amount needed to fund maturing commercial paper through Dec. 31. This provides a cushion of $200 million in excess of the maximum level of collateral calls, potential redemption of Pinnacle One notes, and Oncor's maturing obligations in the next year of approximately $700 million, Fitch anticipates that Oncor's current maturities as well as the $125 million maturing debt of TXU Gas will be refunded. TXU Energy has maturing obligations of $73 million that can be funded from operating cash flow, and also faces remarketing of pollution control revenue bonds of $505 million. Parent debt of $323 million will mature in 2003, in line with funds available from internal sources and expected tax refunds. TXU management forecasts indicate that additional liquidity, derived from operating cash flow and tax rebates, will be sufficient to cover maturities in 2003, in the event that refunding or remarketing is not possible for any units other than Oncor.

Factors that could result in higher future ratings for TXU Corp. and its affiliates are: the TXU group's ability to reduce consolidated debt and leverage measures during 2003-2004; sustained improvement in operating performance of TXU Gas and TXU Australia; and stable operating performance and margins continuing at TXU Energy despite the constrained credit and business environment. Ratings could be lowered from the current level in the event of substantial, unanticipated erosion in TXU Energy's margins, possibly as a result of more aggressive price competition evolving in the retail supply market, or unexpected liability for material obligations of TXU Europe.

Rating Changes:

TXU

-- Senior notes downgraded to 'BBB-' from 'BBB';

-- Preference stock to 'BB+' from 'BBB-';

-- Commercial paper to 'F3' from 'F2'.

U.S Holdings

-- Senior unsecured debt downgraded to 'BBB-' from 'BBB+';

-- Preferred stock downgraded to 'BBB-' from 'BBB+'.

Oncor

-- First mortgage bonds downgraded to 'BBB+' from 'A-'

-- Debentures downgraded to 'BBB' from 'BBB+';

-- Commercial paper affirmed at 'F2'.

TXU Energy

-- Senior unsecured bonds to 'BBB' from 'BBB+'.

-- Commercial paper to 'F3' from 'F2'

TXU Gas Co.

-- Senior notes downgraded to 'BBB-' from 'BBB'.

TXU Australia Holdings (Partnership) Limited Partnership

-- Senior unsecured debt downgraded to 'BBB-' from 'BBB'.

TXU Electricity Limited (formerly Eastern Energy Limited)

-- Bonds downgraded to 'BBB-' from 'BBB'.

Pinnacle One Partners, L.P.

-- Senior secured notes downgraded to 'BB+' from 'BBB-'.