Senate Passes Bipartisan Budget Deal Rolling Back $63 Billion in Cuts
Oncor Worth 8% Less After Interest Rates Rise, CreditSights Says
The unit of Energy Future Holdings Corp. that controls its regulated business is worth 8 percent less now than in May because of rising interest rates, according to CreditSights Inc. analysts Andy DeVries and Charles Johnston.
“Higher interest rates have driven down the value of all yield-oriented investments, including utilities,” reducing the value of Energy Future Intermediate Holding Co., whose “sole asset” is 80.25 percent of power-line business Oncor Electric Delivery, to $6.7 billion from $7.3 billion, the analysts wrote in a report today.
As the Federal Reserve weighs unwinding unprecedented stimulus that’s supported markets for more than four years, the 10-year Treasury yield, a benchmark for interest rates, climbed to 2.89 percent at 3:53 p.m. in New York from 1.63 in May. That pushed borrowing costs on company debt higher, providing an alternative to utility stocks that yield about 4.2 percent.
The updated valuation “shows the $1.5 billion unsecured bonds are impaired by 10-15 percent versus 5 percent in our last report,” they wrote. Asset coverage in the second-lien bonds has fallen to 1.1 times from 1.2 times. “We continue to recommend investors wait for a negative event at EFH or EFIH before buying these bonds.”
The former TXU Corp. is seeking to restructure at least $32 billion of obligations as it struggles under debt acquired since it was taken private by KKR & Co. and TPG Capital six years ago in the largest leveraged buyout in history.
Allan Koenig, a spokesman for the Dallas-based power company, declined to comment on the CreditSights report.
Energy Future reported a $71 million loss for the three months ended June 30, its 10th straight unprofitable quarter. Wholesale electricity rates have dropped as natural gas prices declined about 75 percent from a July 2008 high.
EFIH’s 10 percent first-lien bonds due in December 2020, which traded as high as 117 cents on the dollar in May, fell to 105.25 to yield 8.73 percent at 10:36 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
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