DALLAS, Oct. 14, 2002 — TXU Corp. has announced that it would cut its quarterly dividend by 80 percent. In addition, its overseas division, TXU Europe, is offering for sale all or portions of its business.
In order to meet the new requirements of the rating agencies for investment grade credit, TXU’s Board of Directors declared a quarterly dividend of $0.125 per share of common stock. This represents an 80 percent reduction from the previous quarterly dividend of $0.60 per share.
The dividend will be paid on January 2, 2003 to shareholders of record on December 6, 2002. The indicated annual dividend is now $0.50 per share of common stock.
TXU Corp.’s stock price on the New York Stock Exchange was at least 30 percent down from Friday’s close.
Erle Nye, Chairman and Chief Executive, said, “Today’s actions are the direct result of rating agencies’ concerns as to the company’s liquidity and credit situation. Today’s financial markets and concerns of the rating agencies have forced us to take this dramatic action.”
“The Board’s decision to reduce the dividend was not taken lightly. The events of the past few days persuaded the Board that the dividend reduction was prudent. We recognize the importance of the dividend to our shareholders and sincerely regret having to take this action.
“However, our primary responsibility to the shareholder is to maintain the financial strength and flexibility of the company. The common stock dividend policy will be reviewed on an ongoing basis. The dividend will be increased when there is unquestioned confidence in the company’s liquidity and credit combined with access to the capital markets on reasonable terms.”
In addition to reducing the dividend, TXU has taken the following actions to protect credit.
— TXU has successfully negotiated an amendment to the parent company’s $500 million bank facility that eliminated foreign subsidiaries from its cross default provision.
— TXU is negotiating final terms on an additional credit facility of up to $1 billion at its Oncor subsidiary to facilitate meeting its upcoming maturities.
— Contrary a previous announcement, TXU Corp. has decided not to contribute an extra $700 million in equity contributions to its European operations.
— The company’s developmental capital expenditures throughout all regions will be significantly reduced.
Mike McNally, Chief Financial Officer, said, “The company’s cash flows and earnings remain strong and stable in our Texas and Australia operations, which are performing very well.
“In light of limited attractive investment opportunities, developmental capital expenditures will be reduced significantly. Cash retained from expenditure reductions and the reduced dividend, which totals approximately $850 to $950 million per year, will be available for debt reduction.”
Regarding European operations, recent actions by credit rating agencies will impact the company’s ability to compete in the European markets and accordingly may impact earnings from that segment.
TXU Europe will continue to aggressively address existing plans to reduce costs, restructure purchase power agreements and otherwise improve and maintain the business as an ongoing operation.
TXU Europe, in parallel, is also offering for sale all or portions of its business. The extent of any possible impairment (write off) of the company’s investment in Europe as a result of these activities cannot be known prior to their conclusion. The company does not expect an impairment, if any, to affect its ability to meet TXU Corp.’s bank facility covenants.
Stock prices react to news
By late Monday afternoon, TXU Corp. stock had fallen from $18.75 at Friday’s market close to $12.87 per share on the New York Stock Exchange, presumably because of the news that it would sell all or part of its European divisions and because of the dividend cut.
TXU Europe credit rating falls
Standard & Poor’s cut TXU Europe’s long-term corporate credit rating to a “junk” grade B+ from BBB-, and said the ratings are under review for further downgrades, Reuters News Service said.
In addition, Moody’s Investors Service downgraded the senior unsecured debt ratings of TXU Europe Limited and the debt ratings of the Energy Group Overseas B.V to Caa2 from Baa3, and the issuer rating of TXU Europe Group plc to B3 from Baa3. The preferred stock issued by TXU Europe Capital 1 has been downgraded to Caa3 from Ba2. Moody’s has also assigned a new senior implied rating of B3 to TXU Europe Limited. Moody’s is also reviewing the ratings for possible further downgrade.
Moody’s said it was downgrading TXU Europe Ltd. because of the parent corporation’s reversal on plans to contribute $700 million to the ailing European division.
The ratings agency also cut its long-term corporate credit rating on TXU Corp. and its U.S. and Australian subsidiaries, to BBB from BBB+.
TXU provides electric and natural gas services, merchant energy trading, energy marketing, energy delivery, telecommunications, and energy-related services. TXU is an energy retailer, doing business globally. TXU owns or controls competitive generation and is a portfolio manager and trader.
TXU, which sells over 330 million megawatt hours of electricity and 2.8 trillion cubic feet of natural gas annually, serves over 11 million customers worldwide, primarily in the US, Europe and Australia. Visit http://www.txu.com for more information about TXU.
Source: TXU Corp.