Fitch: Energy Future on watch

Fitch Ratings said Energy Future Intermediate Holding Co. LLC and EFIH Finance Inc. commenced an offer to exchange up to about $1.3 billion of new 10% senior secured notes due 2020 for any and all outstanding Energy Future Holdings Corp.'s $115 million 9¾% senior secured notes due 2019, $1.1 billion 10% senior secured notes due 2020 and Energy Future Intermediate's $141 million 9¾% senior secured notes due 2019.

The consideration will be at or close to par for the notes tendered in exchange until Jan. 8, 2013 and modestly step down thereafter; the expiration date for the offer is Jan.24, 2013.

Concurrent with the offer to exchange, Energy Future is soliciting consent from the holders of its existing 9¾% senior secured notes due 2019 and 10% senior secured notes due 2020 to certain indenture and collateral release amendments. The proposed indenture amendments would strip the notes of many of the restrictive covenants, Fitch said, and modify or eliminate other provisions, including making Energy Future Competitive Holdings Co. an unrestricted subsidiary under the existing indentures governing Energy Future's 2019 and 2020 senior secured notes, causing the guarantee by Energy Future Competitive to be released automatically.

Fitch said it deemed the first-lien exchange offer to be a distressed-debt exchange since the exchange offer is accepted only if the tendering bondholders also consent to indenture amendments that materially impair the position of holders that do not tender.

As a result, Fitch said it placed Energy Future and Energy Future Intermediate's CCC issuer default ratings on Ratings Watch negative.

The agency also placed on Ratings Watch negative the B ratings with RR1 recovery ratings on Energy Future's 9¾% and 10% senior secured notes due in 2019 and 2020, respectively, and Energy Future Intermediate's 10% senior secured notes due 2020.

On confirmation of the completion of the exchange, Fitch said it will lower the issuer default rating of Energy Future and Energy Future Intermediate to Restricted Default (RD) and subsequently assign an appropriate issuer default rating for the post-exchange capital structure and fundamental outlook.

Fitch also said it affirmed Texas Competitive Electric Holding Company LLC's issuer default rating at C.

The agency also said that Energy Future Intermediate issued in a privately negotiated exchange $159.03 million of its 11¼% and 12½% senior toggle notes due 2018 in exchange for Energy Future's $38.5 million 10 7/8% senior notes due 2017 and Energy Future's $118.9 million 11¼% and 12% senior toggle notes due 2017.

The Energy Future Intermediate's 2018 notes being issued in this exchange are part of the same series of notes that were issued Dec. 5 in exchange for a portion of Energy Future's leveraged buyout notes and legacy notes, an exchange that Fitch also deemed as a distressed-debt exchange.

Energy Future Intermediate also commenced another exchange offer to exchange up to about $124 million of new Energy Future Intermediate 2018 notes for the remaining Energy Future's cash pay/toggle notes due 2017.

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