TXU Corp.’s stock rallied slightly Tuesday afternoon on reassurances from company executives after a precipitous morning fall-off and a mid-day trading halt on New York Stock Exchange.

The TXU common ended the day at $17.18, off more than 24% from Monday’s close, but up from a morning low after the company reiterated its “strong financial position” and “ample liquidity.” Trading had been halted on TXU stock for more than an hour at midday Tuesday after it dropped 35% to $14.75 in just three hours.

TXU’s share price has dropped sharply in the past three days after it revised downward its earnings forecast last Friday, blaming the shortfall on TXU Europe’s dismal performance. Last Thursday, the utility giant’s shares were selling for $27.04, already off from Oct. 1’s close of $39.74; it has traded as high as $57.05 in the past year. As one of the top traded stocks Tuesday, more than 32.7 million shares traded hands, compared with usual trading volume of 2.7 million.

About an hour after the trading had been halted at midday Tuesday, TXU issued a written statement reaffirming that “it is in strong financial position [sic] and has ample liquidity, and that it knows of no fundamental reason for the way the TXU common stock traded” on Tuesday morning. A conference call was planned by TXU executives for 7:30 a.m. CST Wednesday for analysts and investors. It was being web cast at www.txu.com, or by conference call at (800) 309-0343.

“As previously stated, the company has $2.6 billion of available liquidity before any financings,” TXU said in the written statement. “As a point of clarification, the company has no outstanding borrowings on either its $800 million of back-up bank facilities in North America or GBP 300 million of bank facilities in Europe, which expire in November 2002.

“The company has already paid off over $1.5 billion of 2003 maturities this year, which leaves total remaining maturities over the next 12 months of approximately $1.5 billion. Planned financings at Oncor and TXU Gas (regulated entities in North America) and terming out of $325 million of Pollution Control Revenue Bonds at TXU Energy over the next 12 months total $1.8-to-$1.9 billion. This leaves ample liquidity, even before considering strong cash flows from operations. This and free cash flows will provide ample funding for the strong dividend, continued debt reduction and capital expenditures. The company has the opportunity to enter into bank facilities at the regulated entities (Oncor and TXU Gas) in lieu of their capital market financings.

“As previously stated, the only credit facility at the TXU Corp. level is its $500 million working capital facility. This facility has a cross default provision that would be triggered by a default by TXU Europe. There are no other facilities at the TXU Corp. level, and no other North America facilities, including commercial paper programs, that would be impacted by a TXU Europe default.”

TXU, although the most wounded, was not the only energy company to suffer in Tuesday’s stock skirmish. Allegheny Energy dropped the most percentage-wise, after reporting Tuesday that it was in technical default on credit agreements (see related story). Allegheny ended the day at $3.80, with a loss of just under 50% of its value on Monday. Allegheny’s news and TXU’s fallout weighed on the rest of the sector, but most had recovered Monday’s value by close, except for a few, including Dominion Resources Inc., which up until Tuesday had been relatively unscathed. On Tuesday Dominion had lost more than 12% and was off about $6. The only energy merchant stock to post a gain, albeit slight, was Oneok Inc., which was up almost 1%, or 17 cents.

Since TXU lowered its forecast last Friday, TXU executives have worked to reassure investors and analysts that its problems in Europe are under control; so far, it has been to no avail. Fitch Ratings Service held a teleconference on TXU Europe on Tuesday, after downgrading only the European unit of the utility giant. Fitch analysts reiterated that only TXU Europe had been downgraded, to “BBB” with a stable outlook, and they also said that parent TXU Corp.’s liquidity appeared to be able to handle any more downgrades from its overseas operations.

After Fitch downgraded TXU Europe’s credit rating two notches below investment grade to “junk,” it led to concern of a possible buyback by TXU Corp. of US$430.3 million in bonds. The downgrade could trigger an option allowing holders of TXU Europe’s 7.25% 2030 bond to “put” or sell their bonds back to the company. The company has 21 days to appoint an independent financial adviser to decide whether the downgrade is detrimental to the bonds and the bondholders.

By itself, TXU Europe would have problems, said Fitch analysts, but the parent corporation will be able to assist the unit without any fallout, already pledging $700 million toward its overseas’ subsidiary. Noting that TXU Corp.’s priority was its own ratings and not those of the subsidiary, Fitch analysts reported that TXU Europe still “faces significant capital constraints.” However, if TXU Corp. is able to take the actions needed, which will include asset sales, it may be able to survive. Fitch plans a full research report on TXU Corp. this week, which is expected to focus on collateral requirements, and TXU Europe’s unrealized mark-to-market gains.

Since lowering its forecasts through 2003, many analysts have downgraded the company, including several on Monday and Tuesday. Steve Fleishman, a Merrill Lynch analyst, noted that TXU’s U.S. business was “one of the few in the industry to be on or above target for this year,” but TXU Europe — 25% of the company — “continues to deteriorate. We believe the earnings risk is now worse than the prior worst-case guidance of a 20-cents a share hit,” he said.

Fleishman added that “TXU is more dependent than ever on continued strong performance in the recently deregulated Texas power market,” because if TXU Europe does not remain creditworthy, “Europe could have material collateral requirements, and the parent could face sizeable write-offs.”

Michael Worms, an analyst with Gerard Klauer Mattison & Co. added that TXU has “created a huge credibility gap, and now they have to start to repair it.” And Samir Nangia, an analyst with Credit Lyonnais Securities Inc., said, “You lose credibility, and you get slammed. I think that’s what TXU is going through. At the same time, this market has also shown that it has a short memory. That’s what this market is about. These things change.”

Analysts at CreditSights said the little information given by the company “wasn’t encouraging,” adding that “TXU Europe is a very shaky proposition and we still have concerns about the way things might go in Texas.” Said analysts, “our concerns about the supply business in Texas weren’t assuaged, however. While it wouldn’t be Oncor that would suffer directly, we still think that the parallels to England are there and could potentially be a problem in the future for the supply and generation portions of the business. Although TXU tried to tell us there were a lot of differences between England and Texas, they really didn’t give a lot of concrete reasons why. We’d continue to be cautious about TXU debt.”

CEO Erle Nye, during an analyst conference in New York City Monday, touted the company’s past success and reiterated its strength in Texas and Australian markets. Nye said there was no liquidity problem and said he was confident that the company could renegotiate its above-market rate contracts in the United Kingdom.

“There is not a liquidity problem, and we have reviewed thoroughly the credit implications surrounding these developments,” Nye said. “The company’s cash flow remains strong, and the dividend is secure.” Nye added that it was his “firm opinion that despite this very disappointing development, the company’s prospects are very positive.”

In the written statement Tuesday, TXU Corp. once again reaffirmed its operating earnings guidance for 2002, first stated last Friday, of $3.20-$3.25 per share of common stock, and for 2003 of $3.45-$3.55 per share.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.