TXU of the USA has taken dramatic action to protect its credit and liquidity position by cutting loose its European subsidiaries.
The retail business of TXU Europe has been sold to E.On for $2.11 billion via its UK subsidiary PowerGen. The deal does not include TXU's trading business or power purchase agreements. As a result of the deal, PowerGen acquired three coal-fired plants (the 999 MWe Drakelow C plant, the 945 MWe High Marnham plant, and the 970 MWe Ironbridge plant), and the Citigen City of London CHP scheme. The deal does not include TXU's continental European businesses, its trading operation or its portfolio of contractual obligations.
Mike McNally, chief financial officer of TXU was quoted as saying that the company's primary focus was to "maintain TXU Corporation and the North American subsidiaries' solid investment grade rating." TXU Europe's credit rating had been reduced to junk status by several ratings agencies, including Fitch, Moody's and Standard and Poors. To meet the new requirements of the ratings agencies for investment grade credit, TXU's board of directors declared a quarterly dividend of $0.125 per share of common stock, representing an 80 per cent reduction from the previous quarterly dividend. In addition to reducing the dividend, TXU has taken the several measures to protect credit.
It has negotiated an amendment to the parent company's $500 million bank facility that eliminated foreign subsidiaries from its cross default provision, and is negotiating final terms on an additional credit facility of up to $1 billion at its Oncor subsidiary, to facilitate meeting its upcoming maturities. The company also plans to significantly reduce developmental capital expenditures throughout the regions where it has interests.
TXU Europe had been suffering from a number of loss-making contracts, the result of overcapacity in the UK power sector. TXU Europe received a large share of its power from AES Drax under a 15-year contract negotiated in 1999. While the contract was favourable at the time, wholesale power prices have fallen sharply since then, leaving TXU Europe to overpay heavily for its power. Eric Nye, chairman and ceo of TXU, blamed TXU Europe's problems on low prices and increased competition in the UK electricity markets.
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