Moody's cuts Enron long-term debt, keeps it on review for downgrade

Moody's Investors Service lowered the senior unsecured long-term debt ratings of Enron Corp from Baa1 to Baa2, but added that the ratings will remain on review for downgrade. Moody's actions are prompted by the deterioration in Enron's financial flexibility since the company announced significant write-downs as well as equity charges in previously undisclosed partnership investments. This led to a substantial loss in investor confidence that has led to a more than halving of Enron's share price and difficulties in rolling over commercial paper. Moody's has put Enron's commercial paper rating on review, as well. In response to these events, Enron has shored up its near term liquidity position by drawing down on all of its committed revolving credit facilities and buying back its outstanding commercial paper. This would leave the company with a net cash position of approximately $1.2 billion. In addition, Enron is in the process of arranging additional bank financing to support its core wholesale trading operations. Moody's has previously commented on the challenges impacting a number of Enron's businesses but the magnitude of the announced charges will reduce Enron's equity base and increase nominal financial leverage to somewhat over 50.0% while slashing earnings. The company's previously announced sale of Portland General, however, would result in cash proceeds approximating $1.8 billion which management is earmarking for debt reduction. In addition, the sale will remove approximately $1 billion of debt obligations from Enron's balance sheet. Moody's noted that, while this transaction will go a long way to help restore Enron's balance sheet, it requires regulatory approval and is likely to take up to a year to complete Enron shares closed down $1.59 to $13.81.

S&P cuts AT&T long-term debt, commercial paper

Standard & Poor's lowered its long-term debt and commercial paper ratings for AT&T Corp. S&P cut the commercial paper rating to A-2 from A-1, and AT&T's senior unsecured debt to A- from A, adding that it may lower the rating further. AT&T shares closed down 24c to $15.77.

Moody's downgrades Exide

Moody's Investors Service downgraded Exide Technologies, Inc., affecting $1.7 billion of debt and bank facilities. Included on the reductions were the company's $900 million senior secured bank facility, cut to B3 from Ba3; its $300 million of 10% senior unsecured notes due 2005 and Exide Holding Europe, SA's DM 175 million senior unsecured global notes due 2004, both cut to Caa2 from B1; its $398 million 2.9% convertible senior subordinated notes due 2005, cut to Ca from B3. The outlook is negative.

Moody's said it took the actions after "a series of unexpected negative developments at Exide, together with the company's inability to realize improvement of its key credit protection measures following last year's acquisition of GNB Technologies despite implementation of aggressive cost cutting and capacity rationalization programs."

The rating agency said announcements over the past month have been "most alarming" and indicate Exide's near-term business prospects have "become debilitated by a combination of critical concerns about liquidity; the declining economy and its unforeseen impact on Exide's industrial business; and management upheaval."

Moody's noted the company now has an equity market capitalization of $33 million against $1.4 billion of debt.

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