TXU $250 million mandatory convertibles talked at 8.125-8.625% yield, up 17-23%

By Ronda Fears

Nashville, Tenn., May 28 - TXU Corp. launched $250 million of four-year mandatory convertible preferreds in the Feline Prides structure with price talk of an 8.125% to 8.625% dividend and a 17% to 23% initial conversion premium. The deal is set to price after the close Thursday via lead manager Merrill Lynch & Co.

TXU, a utility and energy trading company with telecom interests through a joint venture, is also selling 9.5 million of common shares.

Wachovia Securities convertible analysts said at the midpoint of price talk the issue is about 3.6% cheap, assuming a credit spread of 250 basis points over Treasuries and 22% volatility in the stock. Using a spread of 250 basis points over Libor and 18.5% volatility in the stock, Deutsche Bank Securities Inc. analysts put it 1.97% cheap.

Both evaluations consider TXU's common stock dividend, which provides a yield of about 4.5%.

The mandatory will be non-callable.

Co-managers of the offerings include Banc of America Securities, Credit Suisse First Boston and Salomon Smith Barney.

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