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Standard & Poor's Ratings Services (S&P) has lowered its corporate credit rating on Dallas-based TXU Corp. to BB from BBB-.

According to the rating agency, the downgrade follows Kohlberg Kravis Roberts & Co. and Texas Pacific Group's agreement to acquire TXU because the company will incur about $24.6 billion in additional debt under the plan. (See "TXU Acquisition Spurs Renewable Energy Growth.") TXU Energy Co. LLC, TXU's retail and wholesale electricity provider, also had its corporate credit rating and senior unsecured debt rating lowered to BB from BBB- by S&P.

Under the proposed plan, TXU Energy will incur large senior secured debt and credit facilities and senior unsecured debt, which will increase default and loss risk for existing unsecured debt. Based on the agency's preliminary analysis, TXU Energy's financial profile will be severely stressed with the added debt burden.

If the acquisition is successful, S&P says it expects to further downgrade TXU and TXU Energy to somewhere in the B category.


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