Moody's puts Polska Telefonia on upgrade review

Moody's Investors Service put Polska Telefonia Cyfrowa Sp. zoo on review for upgrade, affecting €1 billion of debt including its senior subordinated bonds at Ba3.

Moody's said the action is prompted by the announcement that Deutsche Telekom (Baa3) launched a €1 billion cash offer to increase its stake in Polska Telefonia to 100%. Deutsche Telekom currently owns 49% of Polska Telefonia, through its mobile division T-Mobile and subsidiaries, with the remaining 51% owned by Elektrim and Vivendi through Elektrim Telekomunikacja.

Moody's will continue to monitor developments and, if the acquisition is successful, the review will take into consideration Polska Telefonia's strategic position within Deutsche Telekom, its funding strategy going forward and the position of Polska Telefonia's debt within the overall capital structure of Deutsche Telecom.

In particular, Moody's would consider Deutsche Telekom's future intentions regarding Polska Telefonia's existing bank and bond debt and any resultant notching considerations (bonds currently notched two below the senior implied rating because of the significant amount of bank debt subordinating the notes).

S&P keeps East Coast Power on positive watch

Standard & Poor's said East Coast Power LLC remains on CreditWatch Positive including its senior secured notes.

S&P put East Coast Power on CreditWatch on April 16 following the announcement that El Paso Merchant Energy, a business unit of El Paso Corp. had executed an agreement to sell its 99% interest in East Coast Power to GS Linden Power Holdings LLC, a subsidiary of The Goldman Sachs Group Inc., for $456 million in cash. The transaction was originally slated to close in July.

However, in May, FERC initiated an investigation into Enron Corp. and its ownership of the three cogeneration facilities owned or formerly owned by East Coast Power (Cogen Technologies Linden Venture, Camden Cogen LP and Cogen Technologies NJ Venture). FERC is investigating whether Enron improperly retained qualifying facility benefits for these facilities by violating the ownership criteria for QFs.

It is unclear at this point what FERC's remedies will be if it is found that such is the case, S&P said. It is important to note that a loss of QF status for a period of Enron's ownership would not invalidate Linden Venture's contract with Consolidated Edison, but it could result in a reduction of revenues. One proceeding involving Enron-affiliated QFs in California was settled through a combination of refunds and adjustments to the power purchase agreement. Another case involving an Enron-affiliated QF in Nevada was settled without the requirement of any refund or adjustment to the power purchase agreement.

S&P said it believes East Coast Power will try to reach a settlement agreement with interested parties before the judge's ruling scheduled for February 2004 and that at this point the sale is not in jeopardy.

S&P confirms Elwood, off watch

Standard & Poor's confirmed on Elwood Energy LLC's $382.2 million bonds due 2026 at BB and removed them from CreditWatch negative. The outlook is negative.

S&P said it removed the rating from CreditWatch because the 90-day preference period has passed for the $18.7 million escrow collateral that Aquila Inc. provided to Elwood in March 2003, reducing the risk that the collateral would not be available to Elwood under an Aquila bankruptcy. Furthermore, the downward credit pressure on Aquila has eased in recent months.

Elwood's ratings reflects the risks that the project will be exposed to partial merchant risk from 2013 and full merchant risk after 2017 as PSAs begin to expire, the excess capacity situation in the MAIN region could lead to depressed power prices in that market for years to come, the lack of geography, fuel, and technology diversity and that Aquila, a major offtaker, has low credit quality.

Strengths are that about 52% of cash flows through 2012 is supported by PSAs with high creditworthy offtakers and achievable availability requirements, the low creditworthiness of the remaining cash flow from Aquila is partially offset by collateral that covers 12 months of Aquila's capacity payments and the minimal technology risk.

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