Moody's Investors Service on Monday cut its ratings on Energy Future Holdings to a deeply speculative grade and warned the company will likely need to restructure its $44 billion debt load.
Energy Future Holdings, formerly known as TXU Corp, is struggling with its debt after being taken private in the largest leveraged buyout in U.S. history in 2007 by private equity firms Kohlberg Kravis Roberts & Co KKR.UL and Texas Pacific Group TPG.UL.
"The capital structure is untenable and will likely prompt the company to pursue some form of restructuring activity," Moody's said in a statement.
"These actions are likely to address the company's liquidity profile and its substantial maturities upcoming in 2014," Moody's said.
Energy Future Holdings has around $23 billion of debt maturing in 2014, Moody's said.
Moody's cut Energy Future Holdings' corporate family rating one step to Caa1, seven steps below investment grade and a deeply speculative grade. The outlook is negative, indicating an additional cut may be likely in the coming 12-to-18 months.
A distressed debt exchange, in which bondholders swap debt for new cash, debt or equity at less than the debt's par value is deemed a default by rating agencies.
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