Moody's keeps Vivendi on review for possible downgrade

Moody's noted Vivendi Universal confirmed it has a short term liquidity issue and is in discussions with its main credit banks for new credit facilities soon. After downgrading the long-term senior debt ratings to Ba1 from Baa3 on July 1, Moody's noted that the credit remains on review for possible further downgrade.

The downgrade reflected growing doubts about Vivendi Universal's ability to achieve the level of debt reduction factored into the previous rating and arrange refinancings of debt coming due over the next 12 months despite its broad and deep asset base.

It also factored in Moody's expectation that Vivendi Universal's banks would provide continued support for the company and would assist it in the orderly implementation of its financing and asset disposal plans.

Moody's said the current rating assumes Vivendi Universal succeeds in addressing its short term liquidity problem comprehensively in the very near term so that liquidity is assured while new management completes additional asset sales for debt reduction and to restructure liabilities.

The agency added that in this process the company is becoming increasingly dependent on the support of its credit banks.

In Moody's opinion, time is of the essence, and while Moody's acknowledges steps new management has already taken, the longer it takes to arrange additional committed funding, the more strained its financial condition is likely to become.

In the absence of a resolution to Vivendi Universal's liquidity issue in the very near term it faces a worsening situation that could result in further severe downward migration of the ratings, Moody's said.

The agency also reiterated its expectation that should an adequate refinancing be achieved, terms and conditions of the new financing will likely be more onerous than existing borrowing and added that this could well lead to selected downward ratings adjustments in its own right.

S&P notes Reliant Energy news

Standard & Poor's noted that Reliant Energy Inc. (BBB+/stable/A-2) has been granted authorization by the SEC to adopt a new holding company structure, named CenterPoint Energy Inc.

This news, which was expected in S&P's recent affirmation of the corporate credit rating and outlook, is positive for Reliant Energy and its 80%-owned subsidiary, Reliant Resources Inc. (BBB/negative watch/A-2).

The ruling allows Reliant Energy to separate into two companies. Reliant Energy will spin off Reliant Resources later this summer.

The only regulatory action still required before is an extension of the IRS ruling in January that the spinoff will be tax-free to CenterPoint Energy and shareholders. The earlier ruling contemplated implementation of the new holding company structure and spinoff by April 30.

Reliant Energy has requested the extension.

Both Reliant Energy and Reliant Resources also need to extend bank credit facilities, which had been complicated by the uncertainty regarding SEC approval.

Reliant Energy has bank lines totaling $4.7 billion that expire July 12 and has asked for a 90-day extension.

The greater assurance that the spinoff can now be completed in the foreseeable future provides comfort to the banks and facilitates the extension.

Fitch cuts New World

Fitch Ratings downgraded New World Infrastructure Ltd.'s long-term senior unsecured debt to BB- from BBB- and kept it on Rating Watch Negative.

The downgrade reflects the significant increase in New World's business and financial risks, Ftich said. Since 1999, it has invested over HK$2.8 billion in the TMT sector compared to its market capitalization of HK$1.7 billion - mostly in projects still at an early stage of operation or development and with highly uncertain prospects.

The shift from its traditional infrastructure sectors into the TMT sector has resulted in lower earnings quality, increased gearing, worsened interest coverage and reduced financial flexibility, Fitch said.

Net profit fell 99% to HK$15.1 million in the financial year ended June 2001, Fitch noted. Excluding gains and losses on disposals, net profit fell 57% to HK$238 million. NWI also recorded a year-on-year decline in net profit of 72% to HK$100.1 million in the six months to December 2001. Indeed, New World would have incurred a loss of HK$13.6m during this period were it not for the HK$113.7 million gain made on disposal of assets.

Fitch lowers EDS outlook

Fitch Ratings lowered its outlook on Electronic Data Systems Corp. to negative from stable and confirmed its senior unsecured notes and mandatory convertible notes at AA-.

Fitch said it lowered the outlook because of EDS's relationship with WorldCom Inc. and its potential negative consequences financially and operationally, continued weakness in the information technology services industry, slowdown in the award of new business from existing and new customers, the varied competitive landscape, all which could impact the company's ability to meet its operating targets, putting pressure on the company's current rating.

EDS provides IT services to WorldCom under an 11-year, $6.4 billion agreement signed in October 1999, Fitch noted. Separately, both companies entered into an 11-year telecommunication network services agreement valued at $6 billion, which makes WorldCom EDS's preferred, but not exclusive, provider of certain network services.

Under a worst case scenario where WorldCom's telecommunications network would be shut down and no longer require EDS's IT services, at risk would be approximately $600 million of EDS's revenue base for all of 2002, Fitch said. Additional charges for asset write-offs and receivables exposure could also be possible. Fitch views this scenario as unlikely, as WorldCom should continue to be a user of IT services whether WorldCom is operating in or out of bankruptcy.

© 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.