Moody's rates Inn of the Mountain Gods notes Caa1

Moody's Investors Service assigned a Caa1 rating to the Inn of the Mountain Gods Resort and Casino's proposed $185 million senior notes due 2010. The outlook is stable.

Moody's said the ratings consider the unresolved compact dispute between the Mescalero Apache Tribe, owner of Inn of the Mountain Gods, and the State of New Mexico. The tribe is currently in a disagreement with the State of New Mexico related to the 1997 compact which the tribe entered into under protest. Since entering into that compact in 1997, the tribe has not paid any revenue-sharing or regulatory fees required by the compact and related revenue-sharing agreement.

Although Inn of the Mountain Gods has accrued a financial liability for amounts that are owed to the State of New Mexico (approximately $36 million through Aug. 31, 2003), it is Moody's understanding that this liability has not historically been cash funded into a restricted account set up solely for the purpose of funding a compact settlement and held by either Inn of the Mountain Gods, the tribe, or an independent third party.

The actual cash to be set aside to fund this accrued payment obligation to date will be placed in escrow and serve as security through the construction period.

In 2001, the tribe had the opportunity to enter into a new compact with a lower revenue sharing requirement (8% fee versus 16% fee in 1997 compact), but decided not to do so at that time, Moody's noted. The tribe does, however, have the unilateral right to enter into the 2001 compact at any time.

If the tribe does not enter into an extension of the 1997 compact (expires in 2006, subject to a one-year extension) or a new compact prior to the expiration of the 1997 compact, Inn of the Mountain Gods may not be able to continue gaming operations through the full term of the notes, Moody's said. If the disagreements with the State of New Mexico regarding the revenue sharing provisions are resolved, the tribe is entitled to sign a new compact which will extend the term to 2015.

While the possibility of a favorable settlement certainly exists for Inn of the Mountain Gods, the negotiated and political nature of the compact settlement process combined with the uncertainty of the timing, amount and future terms of any settlement going forward make it difficult for Moody's to assume that the tribe will be successful in resolving this dispute. To the extent that the compact dispute is successfully resolved, the ratings could be raised one notch. Any upgrade, however, would also require Inn of the Mountain Gods to meet its financial performance objectives.

S&P upgrades CESP

Standard & Poor's upgraded Companhia Energetica de Sao Paulo including raising its €200 million 9.75% notes due 2004 and $300 million 10.5% notes due 2004 to CCC from D and $150 million notes due 2005 to CCC from CC. The outlook is negative.

S&P said the actions follow a review of CESP's financial profile after completion of an exchange offer proposed by the company in July 2003.

Even considering the new maturity schedule of the notes, S&P said it believes the company will continue to have difficulties to meet its significant debt requirements in the short term.

Given CESP's weak cash generation and its very limited financial flexibility, its capacity to meet its sizable maturities derive exclusively from further negotiations with existing creditors, the largest of which is the federal government, S&P noted.

The ratings reflect the severe drop in CESP's revenues and cash flow generation due to low demand for energy, which has impaired the company's capacity to close new contracts to replace the initial contracts; deterioration of its cash flow-protection measures due to currency volatility; high debt burden and significant refinancing need in the short term, even after the debt restructuring; and regulatory risk, which remains a significant concern until there is further definition on the new framework being proposed by the Ministry of Mines and Energy, and how the transition to the new model will be implemented.

Strengths include CESP's proven capacity to operate its six hydropower plants, constantly generating more power than stated capacity; strategic location in the state of São Paulo, the most industrialized and richest state of Brazil; and low-cost producer status, S&P added.

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