S&P rates DTE Energy convert at BBB

Standard & Poor's assigned s BBB rating to energy holding company DTE Energy Co.'s BBB+/stable) $150 million mandatory convertible offering.

Detroit-based DTE Energy is a diversified energy holding company and has about $8.5 billion in debt.

The ratings are a function of its regulated utility subsidiaries Detroit Edison Co. and Michigan Consolidated Gas Co. and a growing portfolio of higher-risk, non-regulated activities.

DTE's merger with MCN Energy Group Inc. in 2001 enhanced its business risk profile by adding a low-risk natural gas distribution company that provides Midwest regional growth potential through the convergence of electric and gas businesses.

However, the debt load in the near term has pressured credit protection measures.

Still, the potential for reductions in debt leverage through strategic asset sales, annual cost synergies of about $100 million pretax and an expected increased cash flow are positive attributes.

Importantly, the current rating factors in expectations for debt reduction and improving credit protection measures in the near term.

DTE Energy will derive the majority, but a decreasing percentage, of its credit quality from Detroit Edison and MichCon.

Providing support is Detroit Edison's favorable restructuring legislation, resulting in the issuance of $1.7 billion in securitized bonds to fully recover stranded costs, most notably the Fermi nuclear plant.

The strength of DTE's operating companies is offset by a growing portfolio of nonregulated investments, including the focus on emerging energy technologies, coal transportation and tolling, energy trading and marketing, merchant generation and gas pipelines and processing.

DTE's strategy is to place greater emphasis on these businesses becoming the primary driver of its financial performance.

Clearly, management oversight of these ventures is a high priority in light of the higher-risk profile.

Substantial growth in non-regulated businesses, which are not isolated from the utility, will require even stronger credit-protection measures for the consolidated entity.

DTE's consolidated financials reflect adequate protection measures for the rating category. Adjusted funds from operations to average total debt is expected to be about 25% and adjusted FFO interest coverage should exceed 4 times.

Adjusted total debt as a percentage of total capital is expected to trend downward to about 50%.

The stable outlook reflects solid regulated utility operations and management's commitment to reduce consolidated debt leverage.

However, the company intends to expand aggressively its higher-risk nonregulated activities.

Therefore, producing financial measures commensurate with the increased risk profile, meeting cash flow targets and debt reduction goals, and realizing synergy opportunities are critical to maintaining ratings stability.

S&P says AMD ratings unaffected by warning

Standard & Poor's said Advanced Micro Devices Inc.'s (B/stable) warning that it expects a revenue decline for the June quarter does not affect its ratings or outlook.

AMD, the second-largest supplier of personal computer microprocessors, expects June quarter revenues to be in the $620 million to $700 million range for the quarter, compared to earlier guidance of $820 million to $900 million, and the $985 million revenues in the year-earlier quarter.

The company will report a substantial operating loss, due to weaker prices and expected declining unit microprocessor shipments.

Inventory levels at personal computer manufacturers remain high, while chip pricing has been very aggressive.

AMD's financial performance fluctuates, depending on the timing of new product introductions and pricing practices by AMD and dominant supplier Intel Corp.

Still, marketplace forces are expected to support AMD's continued presence as a microprocessor supplier.

S&P cuts Cinergy senior debt to BBB

Standard & Poor's lowered Cinergy Corp.'s senior unsecured debt rating to BBB from BBB+, but it affirmed its BBB+/A-2 corporate credit rating.

S&P also lowered the corporate credit ratings of Cincinnati Gas & Electric Co. and PSI Energy Inc. to BBB+.

The outlook is stable.

Cincinnati-based Cinergy had about $4.9 billion of on-balance sheet debt as of Dec. 31.

The BBB+ corporate credit ratings reflect S&P's methodology and assessment that the risk of default is the same throughout the consolidated enterprise.

The levelization resulted in the downgrade of the corporate credit ratings of the regulated subsidiaries.

However, the senior secured debt ratings at CG&E and PSI were affirmed at A-, one notch above the utilities' corporate credit rating, due to the significant asset value of the property underlying the first mortgage bonds.

Cinergy consists of the regulated transmission and distribution assets of CG&E and unregulated CG&E generation assets, the regulated vertically integrated PSI serving Indiana, as well as nonregulated energy merchant functions.

The ratings reflect the consolidated credit methodology and the credit strength of its operating utilities, CG&E and PSI.

Importantly, ratings are based on Cinergy's strategic focus to continue to operate as a virtual fully integrated utility, which is not expected to significantly deviate from 92% of cash flows as evidenced in 2001.

Any deviation from this strategy would pressure the business and financial profiles of the Cinergy enterprise.

Ratings are constrained by Cinergy's higher-risk, non-regulated activities, including its energy marketing and trading activities.

Ratings stability is predicated on Cinergy's improvement of consolidated credit protection measures with adjusted funds flow to average total debt near 25%, funds flow interest coverage approaching 4 times and adjusted debt to total capital under 50%.

The stable outlook expressly factors in Cinergy's commitment to bolster its balance sheet, improve credit protection measures, and operate as an integrated utility.

Current ratings incorporate continued equity issuance, asset sales, operating and maintenance cost reductions and favorable long-term regulatory treatment in Indiana.

Expectations are that these actions will fortify Cinergy's standing at the upper end of the BBB rating category.

However, failure to make significant progress in a timely manner will pressure ratings.

S&P keep CMS on negative watch

Standard & Poor's said it is keeping CMS Energy Corp. (BB) on negative watch, following the company's extension of its revolving credit facility.

Michigan-based CMS Energy has about $8 billion in debt.

S&P perceives no immediate effect on credit quality from the extension of the $450 million revolving credit facility to July 12, 2002, from June 15, 2002.

At issue will be what type of longer-term financing is put in place to repay about $300 million of the borrowings under the facility.

CMS credit quality has become increasingly uncertain since the discovery of "round-trip" electricity trades conducted by its marketing and trading subsidiary, S&P said.

The round-trip trades resulted in the resignation of Bill McCormick, long-time chairman and CEO of CMS, and have further eroded the firm's standing in the capital markets.

In addition, uncertainty has arisen because of an SEC inquiry into the round-trip trades, plans to restate 2000 and 2001 financial statements, Arthur Andersen's announcement that it will not comment on CMS' restated financial statements, an internal investigation into such trades and shareholder lawsuits.

CMS may be forced to secure assets in one of its operating subsidiaries to obtain long-term financing.

The company's willingness to use its operating subsidiaries to weather its current liquidity position may immediately affect credit ratings.

Specifically, CMS' potential actions regarding this long-term financing such that funds from its operating subsidiaries could be upstreamed to the parent indicates that in a stress scenario funds are fungible throughout the CMS enterprise.

This means that their risk of default would be the same.

Further developments could result in a ratings downgrade.

Likewise, if the situation is resolved without additional incidents, the watch will be removed and ratings affirmed.

S&P assigns B- rating to ONI convertible

Standard & Poor's withdrew its corporate credit rating on ONI Systems Inc. and assigned a B- rating to its $250 million convertible subordinated debt, which is being assumed by Ciena Corp. following approval of the merger. S&P assigned a B- subordinated debt rating to Ciena.

Ciena provides optical transport systems used in telecom networks. It now has $1.1 billion of long-term debt outstanding.

Ratings reflect a narrow business position, challenges of rapid growth, substantial leverage and risks of continuing technology evolution offset by good financial flexibility.

Ciena remains heavily reliant on a very limited customer base, with two customers representing more than 50% of fiscal 2001 sales.

In past years, revenue growth was erratic because of customers' varying business conditions and fluctuating network construction programs.

Although growth was strong in fiscal years 2000 and 2001, sales have begun to decline precipitously in light of depressed communications markets.

Ciena expects an operating loss for fiscal 2002 as it continues to invest in metropolitan fiber-optic technologies.

Revenues of $87 million in the April 2002 quarter fell 80% from $425 million in for year-earlier period.

Still, financial flexibility remains sufficient for operating requirements, with $1.3 billion in liquid assets at April 30.

Ciena expects further meaningful declines in revenues, including ONI, in the July quarter.

Should business conditions not stabilize in the next few quarters, ratings could be lowered.

S&P: CEO changes at AES neutral to ratings

Standard & Poor's views the retirement of Dennis Bakke as CEO of The AES Corp. and the appointment of Paul Hanrahan, formerly a chief operating officers, as his replacement as neutral for the credit.

Hanrahan outlined a number of priorities in a conference call Wednesay morning that are credit-focused, including increasing liquidity, deleveraging the company through asset sales and equity issuances and possibly selling or spinning off businesses in Latin America that are currently detracting from shareholder value.

While the increased credit focus is encouraging, the future of the credit is dependant less upon plans and goals and more upon execution.

S&P puts Goodrich on negative watch

Standard & Poor's placed the ratings of Goodrich Corp. on negative watch following the announced acquisition of TRW Inc.'s Aeronautical Systems for $1.5 billion in cash, to be financed with $1.1 billion of debt and a $400 million mandatory convertible.

The transaction is subject to regulatory approvals and is expected to close in the fourth quarter of 2002.

Although the proposed transaction would strengthen Goodrich's competitive position in selected commercial aerospace businesses, the additional debt would weaken the firm's financial profile.

Still, the combination of the mandatory convertible, good profitability of the acquired operations, expected cost savings of $30 million to $40 million from combining the two entities and anticipated debt reduction in the intermediate term should partly offset the initial adverse impact of acquisition-related debt on Goodrich's key credit protection measures.

Consequently, the corporate credit rating on Goodrich is likely to be lowered only to BBB from BBB+, if the transaction is consummated as currently envisioned.

Goodrich is a tier 1 supplier of aerospace components and a systems integrator with broad product and sector participation and moderate vulnerability to new jetliner deliveries and to customer concentration. 2001 sales were $4.2 billion.

TRW's Aeronautical Systems, with 2001 sales of $1.1 billion, consist primarily of engine fuel controls, flight controls, electric power systems and cargo systems.

Those businesses are either complementary to Goodrich or provide new platforms for growth.

Moody's puts Goodrich on review

Moody's Investors Service placed the ratings of Goodrich Corp. (senior unsecured at Baa1) under review for possible downgrade as a result of its plan to purchase the aerospace business of TRW Corp. for $1.5 billion in cash.

Moody's is concerned about a substantial increase in debt to finance this acquisition, combined with the potential for weaker cash flow prospects given the poor conditions in the commercial aerospace and civil aviation markets.

The company expects to close the transaction prior to year end and Moody's anticipates completing its rating review once the regulatory review is finalized.

Ratings on review for possible downgrade include B.F. Goodrich Capital trust preferred stock at Baa2.

Moody's review will focus on increased debt servicing burden on an already leveraged capital structure, sustainability of operating free cash flow, integration plans, financial policy going forward, any residual asbestos related expense and the likelihood and impact of further acquisitions over the next several years.

Moody's noted that the debt from this transaction could nearly double Goodrich's on balance sheet debt level, which is already high relative to ongoing cash flow.

At 2001, debt to net operating profit from continuing operations was 4.0 times and interest coverage was 3.3 times when including the QUIPS payments.

As well, free cash flow from continuing operations has been modest for some time, in part due to a relatively sizeable dividend.

S&P rates Six Flags senior bank facility at BB-

Standard & Poor's assigned a BB- rating to Six Flags Theme Parks Inc.'s $1.05 billion of senior secured credit facilities.

Also, S&P affirmed the other ratings on Six Flags.

The new credit facilities reduce near-term amortization requirements and extend bank debt maturities until 2008-2009.

The ratings reflect good geographic and cash flow diversity, relatively stable operating performance and S&P's expectation that interest coverage will improve modestly despite management'' active acquisition orientation.

Financial risk is relatively high.

Proforma adjusted EBITDA coverage of total interest and debt-like preferred dividends is adequate for the rating at about 1.7 times for the 12 months ended March 31.

Discretionary cash flow has been negative from 1998 to 2000 because of an aggressive capital expenditure program to rebrand 10 of the acquired parks, many of which have lacked sustained investment for the past several years.

Nevertheless, discretionary cash flow was positive in 2001, a result of reduced capital spending requirements after the company finished rebranding nearly all of its largest parks.

The stable outlook reflects the expectation that operating performance will remain relatively stable in 2002 because of the shift in consumer preferences for close-to-home entertainment alternatives.

© 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.