US HIGH YIELD-Former TXU Corp sells record $7.5 bln junk bond

By Dena Aubin

NEW YORK, Oct 23 (Reuters) - Shrugging off renewed concerns about a credit squeeze, investors on Wednesday lined up to buy $7.5 billion of low-rated debt from the former TXU Corp., the largest U.S. junk bond sale ever.

Drawing in buyers with yields of up to 11.625 percent, the power company, now known as Energy Future Holdings Corp., was able to increase the sale twice from an originally planned $4.5 billion.

The deal will help Wall Street underwriters offload debt used to finance TXU's leveraged buyout earlier this month.

The worst global credit squeeze in a decade this summer had left bankers stuck with more than $300 billion of bonds and loans committed for leveraged-buyout financings as investor demand for these securities dried up.

Underwriters pulled off the sale even though U.S. stocks and riskier bond prices fell on Wednesday after investment bank Merrill Lynch (MER.N: Quote, Profile, Research) posted its first loss in six years.

"It's difficult for me to envision everything holding together really well as far as the economy goes, when the financial companies are under such stress," said Robert Grimm, co-head of the high-yield group at J. Giordano Securities in Stamford, Connecticut.

TOPS RJR SALE

But some investors apparently saw the market weakness as an opportunity to nab bonds with yields several percentage points higher than those available just a few months ago.