Moody's cuts Teco to junk

Moody's Investors Service downgraded Teco Energy Inc.'s senior unsecured rating to Ba1 from Baa2 and the rating on the trust preferred securities of Teco Capital Trust I and Teco Capital Trust II to Ba2 from Baa3. Other ratings were also slashed.

The outlook for Teco Energy is negative and the rating outlook for Tampa Electric is stable.

The downgrade reflects higher risks associated with exposure to the merchant generation markets, which will increase further with the buyout of partner Panda Energy's interests, and diminished asset value, Moody's said. Also, continued poor merchant energy market conditions will continue to severely limit the cash flow and Moody's expects those conditions to continue through 2004.

The negative outlook reflects limited financial flexibility for the remainder of 2003 and the possibility that Teco will have to execute additional asset sales or debt financings to offset the negative effects of poorly performing merchant plants.

The stable outlook on Tampa Electric's reflects a rating level adequate for the financial pressure placed on the utility by Teco as it attempts to stabilize its own financial condition, Moody's added.

Liquidity continues to be fairly tight and Teco has large rating triggered obligations associated with this exposure.

In particular, Teco is required, within 15 days of this rating action, to collateralize or repay a $375 million equity bridge loan that would otherwise have been paid in increments through the remainder of the year.

As a result of this rating downgrade, additional contingent obligations will now be required to satisfy letter of credit provisions in its construction contract undertakings for the Union and Gila projects. Teco is now required to deliver letters of credit in an amount equal to the full construction contract price of the two projects, or such lesser amount satisfactory to the majority of the project lenders.

Although Teco believes the amount required would be around $60 million, Moody's said it is concerned with the uncertainty surrounding the actual amount of this obligation.

Moody's confirms Four Seasons

Moody's Investors Service assigned a Baa3 issuer rating to Four Seasons Hotels Inc. and confirmed its ratings, including the 0% convertible subordinated bond due 2029 at Ba1.

The company's investments in hotel projects have held up fairly well despite the severe industry downturn and Moody's expect the company can fund future loan commitments, investments and guarantees from internally generated cash flow, so debt levels should not increase.

At yearend, Four Seasons had cash balances totaling C$165 million with total debt of C$239 million, which reflects the accreted value of its U.S. dollar denominated subordinated 0% convertible.

The converts are putable in September 2004, and the company has the option to settle in cash or stock. Four Seasons maintains a US$200 million (currently unused) revolving credit facility that matures in July 2004.

Moody's expects Four Seasons to refinance this revolver by year-end, thereby providing sufficient liquidity to support the potential put.

Debt protection measures deteriorated in 2002 due to weaker cash flow amid relatively stable debt levels.

The outlook is stable, reflecting the expectation that operations can be financed from internally generated cash flow in 2003 or from the cash cushion should the operating environment deteriorate more than expected.

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