Moody's cuts Mirant

Moody's Investors Service downgraded Mirant Corp. and its subsidiaries, affecting $6.6 billion of debt. Ratings lowered include Mirant's senior unsecured debt, cut to B1 from Ba1, and Mirant Trust I's convertible preferred stock, cut to B3 from Ba2. The outlook remains negative.

Moody's said it downgraded Mirant because of significantly lower operating cashflow relative to its high debt burden coupled with the likelihood that future operating cashflow levels may weaken further due to asset sales and challenging market conditions for the North American merchant power business and the energy marketing and trading business.

The continuing negative outlook reflects uncertainty about potential liabilities from ongoing government investigations and lawsuits related to California's power markets and uncertainty about the independent auditors current review of the company's financial statements, which has prevented Mirant from filing its second quarter 10-Q and providing the required CEO or CFO representations in line with SEC requirements.

Clarity around both these issues, with no material negative implications, would likely result in a stable ratings outlook, Moody's added.

Mirant has total debt of approximately $10.8 billion consisting of consolidated recourse and non-recourse debt of $8.4 billion, off-balance sheet operating leases and turbine facilities of $1.7 billion, a $218 million gas prepay, a $118 million obligation related to construction projects that have either been cancelled or deferred and $345 million of convertible trust preferred securities, Moody's said. In addition, the acquisition of PEPCO's generating assets in December 2000 included the assumption of out-of-market TPA's and PPA's, which are not included in the debt amount. Mirant's cash payments to PEPCO related to these agreements will vary with PJM market prices, but when the transaction closed the discounted fair market value of these obligations was estimated to be $2.3 billion. PJM market prices have come down since then, thereby reducing that amount, however it continues to represent an additional financial obligation.

Moody's believes these obligations, which exclude unconsolidated minority interest subsidiary debt of $500 million (Mirant's share), are high relative to cashflow.

The combination of lower operating cashflow and cash needed for reinvestment in the business is likely to result in minimal amounts of free cashflow, leaving Mirant highly dependent upon asset sale proceeds to further reduce debt, Moody's added. Many companies in this sector have announced similar plans, which put downward pressure on prices and will likely result in a longer period of time needed to complete the contemplated sales.

S&P cuts Amerco

Standard & Poor's downgraded Amerco and kept the company on CreditWatch with negative implications. Ratings affected include Amerco's $175 million 7.85% senior notes due 2003, $100 million 7.135% bond-backed asset trust certificates series 1997-C due 2002, $250 million medium-term notes series C, $200 million 8.8% senior notes due 2005 and $275 million senior notes due 2009, all cut to BB- from BB+.

S&P said the action follows Amerco's failure to complete a public unsecured debt offering. Proceeds from the deal were to have been used to pay a $100 million debt maturity on Oct. 15, 2002.

The company has indicated it has enough funds available to pay the maturity and is also seeking other financing alternatives; however, payment of the maturity will likely leave the company with only a limited amount of cash on hand, S&P said.

Amerco's financial flexibility has weakened significantly over the past several months, S&P said. In June, the company entered into a $205 million bank facility, half the size of the $400 million facility it replaced. The company also had to contribute $76 million of equity to its insurance operations to meet regulatory requirements. In addition, AMERCO has another $175 million of debt maturing in May 2003.

The CreditWatch reflects uncertainty regarding the company's ultimate success in raising additional funding, S&P said. If the company is unsuccessful, ratings could be lowered further. If Amerco is successful in raising additional capital, ratings would likely be affirmed and removed from CreditWatch.

S&P puts Edison Mission on watch

Standard & Poor's put Edison Mission Energy Rating and Edison Mission Marketing and Trading on CreditWatch with negative implications. Ratings affected include Edison Mission Energy's $600 million 7.73% notes due 2009, $600 million 9.875% notes due 2011 and $400 million 10% senior unsecured notes due 2008, all at BBB-, its preferred securities at BB, and Midwest Generation LLC's $333.5 million 8.3% pass through certificates series A due 2009 and $813.5 million 8.56% pass through certificates series B due 2016 at BBB-.

S&P said the action is in response to developments at Edison Mission Energy's largest subsidiary Edison Mission Midwest Holdings Co. and its affiliates. Financing covenants at these units are now preventing cash distributions to Edison Mission Energy.

Edison Mission Energy had planned to take a $175 million cash distribution last week but distribution test covenants unexpectedly blocked the distribution, S&P noted.

In July 2002 Exelon Generation announced that as of Jan. 1, 2003 it will release 2,684 megawatts of Edison Mission Midwest Holdings' coal-fired capacity from contract. The decision not to extend the contract for those units reduces cash flows to Edison Mission Midwest Holdings and parent Edison Mission Energy, as well as exposes both entities to increased merchant power risk. Had Exelon exercised its option to extend the capacity and energy contracts for those units, operating cash flows in 2003 and 2004 would have been more stable and more predictable, S&P said.

Although S&P said it expects that Edison Mission Energy can still service its debt obligations with cash distributions from other projects, the activated cash trap at Edison Mission Midwest Holdings reduces credit strength at Edison Mission Energy.

S&P puts Edison Mission Midwest on watch

Standard & Poor's put Edison Mission Midwest Holdings Co. on CreditWatch with negative implications. Ratings affected include Edison Mission Midwest Holdings' $911 million revolving credit facility due 2003, $808 million revolving credit facility due 2004, $150 million revolving credit facility due 2004, all at BBB-, and Midwest Funding LLC's $774 million senior secured notes due 2004 at BBB-.

S&P said it put the ratings on watch because provisions in Edison Mission Midwest Holdings' credit agreement were unexpectedly activated, restricting all excess cash flow distributions to the company's parent Edison Mission Energy and increasing interest costs.

The action also continues to reflect the increased potential for erosion of financial performance, given the loss of about 40% of contracted capacity revenue from 2003, operating and maintenance costs that continue to exceed initial forecasts, low power market prices in the Chicago area, low investor confidence for the sector, and the need to refinance a large amount of debt beginning in December 2003, S&P said.

In 1999, Edison Mission Midwest Holdings entered into three five-year contracts with ComEd (now assigned to Exelon Generating LLC, an affiliate of ComEd) to purchase up to all of the capacity of the assets through December 2004, S&P said. These contracts require Exelon Generating to take capacity from certain units through December 2004 totaling 1,696 MW, but that also give Exelon Generating the option to release certain capacity from time to time.

Until now, Exelon Generating has taken capacity from essentially all the assets, but gave notice to EMM Holdings in 2002 that it will release 49% of capacity from contract beginning in 2003, S&P said. This release of capacity from contract and the likelihood of continued low market prices in 2003 will reduce cash flows for Edison Mission Midwest Holdings.

S&P rates Gazprom bonds B+

Standard & Poor's assigned a B+ rating to OAO Gazprom's $500 million 10.5% bonds due 2009.

S&P puts AES Drax on watch

Standard & Poor's put AES Drax Holdings Ltd. on CreditWatch with negative implications.

Ratings affected include AES Drax's £200 million 9.07% bonds due 2025 and $302.4 million 10.41% bonds due 2020, both at BBB-, and InPower Ltd.'s £905 million bank loan due 2015, also at BBB-.

Moody's puts MeriStar on review

Moody's Investors Service put MeriStar Hospitality Corp. and MeriStar Hospitality Operating Partnership, LP on review for possible downgrade, affecting $1.3 billion of debt. Securities covered by the action include MeriStar Hospitality Operating Partnership's senior secured bank credit facility at B1, senior unsecured debt at B1, MeriStar Hospitality Corp.'s senior subordinated debt at B3 and CapStar Hotel Co.'s senior subordinated debt at B3.

Moody's said the review follows MeriStar's announcement of lower earnings guidance for the third quarter 2002.

Continued weakness in business and leisure demand are contributing to the REIT's lower-than-anticipated operating performance, Moody's said.

The rating agency added that it is concerned MeriStar's earnings and cash flow could fall below expectations for the remainder of 2002 and 2003, given the dim near-term prospects for lodging demand recovery. The REIT has been operating with stressed credit statistics and weak liquidity for several quarters.

S&P confirms Sierra Pacific Resources, still on watch

Standard & Poor's confirmed its ratings on Sierra Pacific Resources and its utility subsidiaries Nevada Power Co. and Sierra Pacific Power Co. and kept them on CreditWatch with negative implications. Ratings affected include Sierra Pacific Resources's senior unsecured debt at B-, Nevada Power's senior secured debt and bank loan at BB and senior unsecured debt at B-, and Sierra Pacific Power's senior secured debt and bank loan at BB and preferred stock at CCC+.

S&P said the action is in conjunction with a $250 million debt issuance at Nevada Power and a $100 million at Sierra Pacific Power. These financings will refund a total $350 million in bank lines, $200 million of which is at Nevada Power and $150 million at Sierra Pacific, that mature in November 2002.

Sierra Pacific successfully negotiated its power resources for the crucial summer season this year, meeting peak power demand and building over $300 million of cash balances at the end of September 2002, S&P noted. With power prices having fallen considerably, Nevada Power, which depends on the wholesale markets for more than 50% of its annual energy needs, generates positive operating cash flows and may even be in a position to lower rates for its customers. Nevada Power is now also in a position to begin making deferred payments to Duke Energy Corp. and other energy suppliers that continued to supply energy to Nevada Power while accepting 110% of benchmark, rather than contracted, prices.

The current offerings, if successful, will also demonstrate access to the capital markets, a very important consideration in this highly uncertain environment for energy providers, particularly for companies whose credit ratings are as low as those of the Sierra Pacific Resources companies, S&P said.

The completion of this financing is important to stabilize Sierra Pacific's financial position. The utilities are working to establish accounts receivable conduits to provide liquidity in the absence of bank lines.

S&P rates USEC's subsidiary's loan BBB-

Standard & Poor's rated the new $150 million senior secured revolver due September 2005 of United States Enrichment Corp., the primary operating subsidiary of USEC Inc., at BBB-. Furthermore, USEC Inc.'s BB corporate credit rating was confirmed and unsecured debt rating was lowered to BB- from BB.

The new revolver is guaranteed by USEC and secured by accounts receivables and inventories. There is a borrowing base of up to 85% of eligible receivable and 65% eligible inventories. The loan replaced the company's existing $150 million unsecured revolver due July 2003 and has less stringent financial covenants.

"The rating on the new facility reflects Standard & Poor's assessment that under a default scenario there is a very strong likelihood of full recovery of principal due to the significant level of collateral securing the revolving credit facility and the restrictions imposed under its borrowing base calculation," S&P said.

USEC is the world's largest producer of enriched uranium. The company had experienced prolonged delays in modifying its long-term contract under which it sources enriched uranium from Techsnabexport Co. Ltd., a Russian company. Recently, however, market-based pricing terms for the remaining 12 years of the contract were implemented and will take effect in 2003.

On the flip side, the company's profitability has deteriorated with net earnings for the fiscal year ended June 30, 2002 totaling $12 million, down from $41 million in fiscal 2001. At the start of the fiscal year, net earnings were anticipated to be in the range of $35 to $40 million. Predictions for net earnings in 2003 are in the $9 to $12 million range.

At June 30, USEC had $279 million in cash and $138 million of availability under its unused $150 million bank credit facility. There are no debt maturities until 2006. Cash balances are expected to be approximately $80 million to $100 million at the end of the fiscal year. "This liquidity level should be adequate for the intermediate term; however, the company will need to obtain additional long-term financing to enable it to make the significant expenditures required to deploy its more competitive production technology," S&P said.

S&P lowered the unsecured rating to reflect its disadvantage position in USEC's capital structure.

S&P cuts Courtyard by Marriott II

Standard & Poor's downgraded Courtyard by Marriott II LP including lowering its $127.4 million 10.75% senior secured notes due 2008 to B- from B. The outlook remains negative.

S&P said it lowered Courtyard by Marriott II because of its weaker-than-expected performance caused by a more moderate recovery in lodging industry than previously anticipated.

As a result, Courtyard by Marriott II's net house profit will decline more than previously expected, resulting in a smaller cash cushion available for senior note interest after CMBS debt is paid, S&P said. However, additional flexibility stems from the subordinated status of certain obligations payable to Marriott International.

Although the portfolio generated fairly stable cash flow during the 1990s, it was materially affected by the recent decline in lodging demand. Courtyard by Marriott II experienced a 14.6% year-over-year revenue per-available-room (RevPAR) decline in the first half of 2002, S&P said. The Courtyard brand relies heavily on transient business traveler demand, which is not expected to recover until the economy improves. S&P said it now expects that lodging industry RevPAR will decline by 2%-3% for 2002, and increase in the low-single digits in 2003.

S&P puts United Rentals on watch

Standard & Poor's put United Rentals (North America) Inc. on CreditWatch with negative implications. Ratings affected include United Rentals' $200 million 9.5% senior subordinated notes due 2008, $205 million 8.8% senior subordinated notes due 2008, $300 million 9.25% senior subordinated notes due 2009 and $250 million 9% senior subordinated notes due 2009 at BB-, $450 million 10.75% senior unsecured notes due 2008 at BB, $750 million revolver due 2006 and $750 million term loan B bank loan due 2007 at BB+ and United Rentals Trust I's $300 million 6.5% convertible quarterly income preferred securities at B+.

S&P said the watch placement is in response to continued operating weakness stemming from depressed end-market conditions and the failure to meet S&P's expectations for debt reduction in a declining market.

In August 2002, non-residential construction spending decreased about 20% from August 2001 level, S&P noted. The prospects for a significant near-term rebound are uncertain, at least until mid-2003, and the company's current financial measures are subpar for the rating.

The company's third quarter operating income will be weaker than expected, and the company has amended the fixed charge coverage ratio on its credit facility in advance of the results, S&P said.

S&P puts TMM on watch

Standard & Poor's put Grupo TMM SA on CreditWatch with negative implications.

Ratings affected include TMM's $200 million 9.25% notes due 2003 and $200 million 10% notes due 2006 at B+.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.