TXU $750 mln mandatory convertibles talked 8.75-9.25% yield, up 18-22%

By Ronda Fears

Nashville, Tenn., Oct. 9 - TXU Corp. launched $750 million of mandatory convertible units on Tuesday with pricing guidance of 8.75% to 9.25% yield and an 18% to 20% initial conversion premium. The registered deal is set to price after the market close Thursday, via joint bookrunning lead managers Goldman Sachs and Merrill Lynch.

There is a $112.5 million greenshoe on the registered deal. The convertible units will each consist of two $25 convertible notes maturing in three and four years with a forward stock purchase contract.

Dallas-based TXU, a utility holding company with telecom assets, said it plans to use proceeds to pay down debt and general corporate purposes. On Sept. 11, TXU Electric, a wholly owned subsidiary of TXU, announced details of a restructuring and refinancing plan that would reorganize TXU on Jan.1 into a regulated transmission and distribution utility and an unregulated merchant energy company. TXU Electric will remain a holding company for and subsidiaries will include a power generation company, an energy trading and portfolio management firm, and a retail electric provider.

TXU has indicative credit ratings of A3 from Moody's Investors Service and BBB+ from Standard & Poor's Corp., and the convertibles are expected to be rated Baa3 by Moody's and BBB by S&P. TXU will assume TXU Electric's first mortgage bonds and related mortgages. U.S. operations will remain obligated on the first mortgage bonds, which will be secured by a lien on TXU assets. Certain TXU Electric first mortgage bonds and the TXU Electric Capital I and III preferred securities will be redeemed by year-end, according to a Securities and Exchange Commission filing by TXU.

The company estimates the debt restructuring process will result in a one-time charge to earnings of between $70 million and $100 million after-tax in fourth quarter.

TXU common shares closed Tuesday down $2.43 to $46.69. End

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