New York, December 05, 2012 -- Moody's Investors Service changed the rating outlook for Energy Future Holdings Corp. (EFH), its intermediate subsidiary holding company, Energy Future Intermediate Holding Company LLC (EFIH) and its 80% owned transmission and distribution utility, Oncor Electric Delivery Company LLC (Oncor) to developing from negative. In addition, Moody's affirmed EFH's Caa3 Corporate Family Rating (CFR) and Probability of Default Rating (PDR). The ratings for Energy Future Competitive Holdings Company (EFCH) and Texas Competitive Electric Holdings Company LLC (TCEH) are affirmed, and the outlook for TCEH remains negative.

Moody's views EFH's recently announced debt exchange offer as a distressed exchange. For now, EFH's Caa3 PDR will prevail, and we will assign an /LD modifier to the PDR but will remove the modifier several days after the transaction is completed. At that time, EFH's PDR will be repositioned to reflect the limited default that will have occurred and to consider our views that future restructuring activity is likely to continue.

The change in the EFH, EFIH and Oncor rating outlooks to developing from negative reflects the expected liquidity benefits associated with the debt exchange as well as the increased credit separateness that continues to be implemented between EFH and its financially distressed subsidiaries, EFCH and TCEH.

"Our views regarding credit separateness are evolving," said Jim Hempstead, Senior Vice President "and we now believe that the probability of a default occurring simultaneously across the EFH family, excluding Oncor, is diverging. We think a default is highly likely to occur within the next 12 months for EFCH and TCEH, but is increasingly unlikely to occur at EFH and EFIH."

RATING RATIONALE

In order to more accurately reflect the differentiation of default probabilities and to capture the liquidity benefits associated with the debt exchange, Moody's is considering withdrawing the CFR at EFH and reassigning separate CFR's at both EFIH and EFCH. The EFCH CFR will likely remain near the low-Caa/Ca-ratings category, and its corporate family boundaries will include TCEH. A newly assigned CFR for EFCH at the Caa/Ca rating category level will likely trigger downgrades for EFCH and TCEH's debt instruments across their capital structure.

EFCH's principal subsidiary, TCEH, is challenged by low natural gas and power commodity prices, a weak heat rate outlook and low volume expectations. We believe a material restructuring is likely to occur within the next 12 months, and significant impairments will be experienced across their capital structure, including TCEH's senior secured first lien and second lien credit agreements and debt instruments.

EFCH's restructuring flexibility is modestly constrained by a sizeable potential Internal Revenue Service (IRS) liability associated with a recently disclosed $23 billion deferred intercompany gain and excess loss account. We believe it is unlikely that any potential restructuring activity would trigger the realization of this potential liability, but a lingering overhang risk of IRS audits and investigations has risen, and will be incorporated into any newly assigned CFR.

The EFIH corporate family boundaries will likely include Oncor, despite its ring fence type provisions. In addition, the EFIH CFR will likely incorporate an adjustment to include any remaining debt instruments existing at EFH, which we estimate to be approximately $750 million, pro-forma the debt exchange transaction. Under this scenario, EFIH's CFR could be assigned in the Ba ratings category, and is unlikely to be assigned at a rating below the B ratings category. As a result, the debt instruments at EFIH and EFH would likely be upgraded by several notches and Oncor's Baa2 senior secured rating is unlikely to be negatively affected.

"Oncor's credit profile continues to exhibit strong investment grade characteristics," Hempstead added "and although the utility will inevitably feel a strain of indirectly supporting its parent company's debt obligations through its upstream dividend and tax sharing arrangements, we increasingly believe the integrity of its ring fence type provisions will not be tested as a direct result of a restructuring of TCEH."

The ratings for EFH, EFIH and Oncor could be upgraded upon the completion of the debt exchange transaction; repayment of EFH's approximately $680 million note payable to TCEH expected in January 2013; additional EFH restructuring activity which is likely to result in additional debt being transferred directly to EFIH, whereby EFH could eventually become debt free; a recapitalization of EFH and EFIH; and/or upon gaining additional clarity with respect to a restructuring at EFCH and TCEH.

The ratings for EFH, EFIH and Oncor could be downgraded if any EFCH and TCEH restructuring activities were to result in material contagion risk for EFH and EFIH. Our views regarding this contagion risk have shifted to the point where we are now separating the EFIH and EFCH subsidiaries within the EFH family. If contagion risk were to penetrate into the EFH holding company structure, along with EFIH, negative rating actions could result at Oncor, despite its ring fence type provisions.

The methodologies used in this rating were Unregulated Utilities and Power Companies published in August 2009, Regulated Electric and Gas Utilities published in August 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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James Hempstead Senior Vice President Infrastructure Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653William L. Hess MD - Utilities Infrastructure Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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