INVESTMENTS IN LONG-TERM DEBT OF AFFILIATES

As a result of debt exchanges in 2009 through 2011, we hold debt securities of EFH Corp. and TCEH with carrying values totaling $4.283 billion and $3.632 billion at September 30, 2012 and December 31, 2011, respectively, reported as investments in long-term debt of affiliates.

At September 30, 2012 and December 31, 2011, all of these debt securities are classified as available-for-sale because management has determined it would sell or exchange the securities under certain conditions. The EFH Corp. and TCEH securities were reclassified to available-for-sale from held-to-maturity in the third quarter 2011 and fourth quarter 2010, respectively. Any sale or exchange of these securities to/with nonaffiliates would require EFH Corp. to facilitate the transaction. In accordance with accounting guidance for investments classified as available-for-sale, at September 30, 2012 and December 31, 2011 the securities are recorded at fair value and unrealized gains or losses are recorded in other comprehensive income unless such losses are other than temporary, in which case they are recorded as impairments in net income. The principal amounts, coupon rates, maturities and carrying value are as follows:



	September 30, 2012					December 31, 2011
	Principal Amount		Carrying Value (a)			Principal Amount		Carrying Value (a)
Available-for-sale securities:
EFH Corp. 10.875% Fixed Senior Notes due November 1, 2017	$	1,591	$	1,447		$	1,591	$	1,288
EFH Corp. 11.25/12.00% Senior Toggle Notes due November 1, 2017	2,951		2,774			2,784		2,283
EFH Corp. 5.55% Fixed Senior Notes Series P due November 15, 2014	45		36			45		30
EFH Corp. 6.50% Fixed Senior Notes Series Q due November 15, 2024	6		3			6		2
EFH Corp. 6.55% Fixed Senior Notes Series R due November 15, 2034	3		2			3		2
TCEH 10.25% Fixed Senior Notes due November 1, 2015 (both periods include $48 million principal amount of Series B Notes)	79		21			79		27
Total available-for-sale securities	$	4,675	$	4,283		$	4,508	$	3,632
Available-for-sale securities:
Carrying (fair) value			$	4,283				$	3,632
Cumulative unrealized gains (recorded as other comprehensive income) (b)			(480		)			(61		)
Amortized cost basis (c)			$	3,803				$	3,571

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(a)	Carrying value equals fair value.


(b)	2012 amount reflects unrealized gains on all EFH Corp. securities. 2011 amount reflects unrealized gain on EFH Corp. Toggle Notes.


(c)	2012 amount is net of impairments in 2010 through 2012 totaling $100 million. 2011 amount is net of impairments in 2010 and 2011 totaling $94 million.

Interest income recorded on these investments was as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Held-to-maturity securities:
Interest received/accrued	$	—		$	44		$	—		$	126
Accretion of purchase discount	—			36			—			105
PIK interest received/accrued related to EFH Corp. Toggle Notes	—			80			—			226
Total interest income related to held-to-maturity securities	—			160			—			457
Available-for-sale securities:
Interest received/accrued	46			2			138			6
Accretion of purchase discount	23			(2		)	71			—
PIK interest received/accrued related to EFH Corp. Toggle Notes	89			—			259			—
Impairments related to issuer credit	(6		)	—			(6		)	—
Total interest income related to available-for-sale securities	152			—			462			6
Total interest income	$	152		$	160		$	462		$	463

Impairment — During the quarter ended September 2012, we deemed the declines in values of the TCEH securities were other than temporary and recorded a $6 million impairment, which is reported as a reduction of interest income. We considered that the securities were in a loss position for nine months and the effects of low wholesale power prices on the profitability and cash flows of TCEH (which has below investment grade credit ratings) were unlikely to reverse in the near term.

We determine value under the fair value hierarchy established in accounting standards. Under the fair value hierarchy, Level 2 valuations are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences. The fair value of our investment in long-term debt of affiliates is estimated at the lesser of either the call price or the market value as determined by broker quotes and quoted market prices for similar securities in active markets. For the periods presented, the fair values of our investment in long-term debt of affiliates represent Level 2 valuations. At September 30, 2012, unaffiliated parties held 14% of the outstanding EFH Corp. Toggle Notes and 11% of the outstanding EFH Corp 10.875% Notes; EFIH held the remaining outstanding notes.

Our liquidity needs represent interest and principal payments on our long-term debt, which we expect to fund with interest and principal payments we receive on the investments in TCEH and EFH Corp. debt securities, distributions we receive from Oncor Holdings and as necessary, additional liquidity sources including borrowings from EFH Corp. The indentures governing the EFIH Notes do not limit our ability to dividend the EFH Corp. debt securities that we hold to EFH Corp. so long as we received such securities in exchange for the issuance of EFIH debt, which applies to all the EFH Corp. debt we currently hold, and we may dividend a portion of the securities to EFH Corp. in the future.