Fitch says rating outlook for upstream oil & gas stable, price seen lower in 2002

While oil and gas prices have declined, the upstream sector of the industry has derived much benefit from the last two years of high prices, which Fitch said has lead the rating agency to assign a stable rating outlook to the upstream segment. Prices for West Texas Intermediate crude oil averaged $30.36 per barrel in 2000 and will average around $26.00 per barrel in 2001. Meanwhile, natural gas prices averaged about $4.29 per million cubic feet in 2000 and will average around $4.00 million cubic feet in 2001. Prices during the last two years for WTI are nearly 50% above their historical averages of $19 per barrel to $20 per barrel.

"As a result of current prices remaining in line with historical averages and current expectations of midcycle-type hydrocarbon pricing, Fitch has assigned a stable outlook for the upstream segment of the oil and gas industry," said Sean Sexton, senior director, Fitch, who also said, "Global demand will wane and fundamentals of supply and demand will force oil lower, while high inventory levels coupled with decreasing industrial demand will factor into lower gas prices." Waning global and industrial demand are likely to drive the prices of oil and gas lower and keep them there for the near to intermediate term, according to Fitch. Fitch has lowered its price forecast for oil and gas to $19.50 and $2.15, respectively, for 2002.

Moody's puts Conseco on review for downgrade

Moody's Investors Service put the ratings of Conseco Inc. and its affiliates on review for downgrade, affecting $6.1 billion of debt. Ratings affected include Conseco's senior debt at B1, senior subordinated debt at B3, preferred stock at Caa3 and trust preferred stock at Caa1.

Moody's said its review will focus on "the heightened uncertainty associated with the timing and amount of sources of cash, possibly resulting in a tightening of cash flow coverage for the year 2002. To meet cash flow demands, Conseco plans on increasing dividends from insurance companies (compared to historical levels) and raising cash from "alternate cash flow sources," which are currently being discussed at the company. These could include changes to operations, refinancing, non-core asset sales, non-core business line sales and other capital market alternatives, Moody's said.

Moody's said it remains "concerned that the operating performance of Conseco's insurance and finance subsidiaries is likely to also be pressured by external market conditions. That could further constrain the financial flexibility of the holding company by reducing the sources of cash available to it."

Although liquidity appears secure through June 2002 according to company projects, Moody's said it believes "there is a high degree of uncertainty associated with the cash flow sources and dividend projections."

Moody's puts Dynegy, Illinova, Illinois Power on review for downgrade

Moody's Investors Service said it put the ratings of Dynegy Inc. and its subsidiaries on review for possible downgrade, affecting $4 billion of debt. Ratings affected include Dynegy Holdings' Baa2 senior unsecured debt rating, Illinova Corp.'s Baa3 senior unsecured debt rating and Illinois Power Co.'s Baa1 senior secured and Baa2 senior unsecured debt ratings.

Moody's said the action follows Dynegy's announcement of an acquisition of Enron Corp.

The rating agency commented that "the proposed combination would create a leading North American wholesale gas and power franchise. Furthermore, the rating agency said that ChevronTexaco's equity infusion demonstrates the strategic importance of this proposed transaction and adds an element of financial strength to the combination."

But, Moody's added: "The financial and business risks associated with the transaction could negatively impact Dynegy's credit fundamentals."

Moody's confirms Travelex

Moody's Investors Service confirmed the ratings of Travelex plc, concluding a review which began in August 2000. The outlook is stable. Ratings confirmed include: Travelex's £15 million secured bank credit facility rated Ba3 and its £75 million senior unsecured notes maturing 2010 rated B2.

Moody's began the review after Travelex said it had agreed to buy Thomas Cook's financial services division.

Because of the negative pro forma cash flow generation of the acquired Thomas Cook operations, the acquisition was highly dependent on the successful realisation of meaningful synergies, Moody's said.

Moody's said Travelex had made progress in this area, estimating pro forma EBITDA for the consolidated group at £24.1 million for 2000, including £37.1 in synergies and subtracting £21.8 million to reflect the company's estimates for the full-year effect of the Sept. 11 events.

S&P downgrades Exide, still on negative watch

S&P downgraded Exide Technologies and Exide Holdings Europe SA and kept the ratings on CreditWatch with negative implications, where they were placed Aug. 31, 2001. Ratings affected include the senior unsecured rating and the subordinated debt, both cut to CC from CCC, and the senior bank loan, cut to CCC from B-.

S&P said believes "there is an identifiable risk that Exide could default on its debt obligations within the coming year."

S&P said it is worried about: "The recent deterioration in Exide's operating results; the likelihood that weak industry fundamentals will prevent the company from achieving any material improvement in operating results over the near term; the company's currently constrained liquidity; the likelihood that the acceleration of restructuring efforts will put additional pressure on liquidity in the near term; and the heavy debt service burden the company faces."

S&P cuts Grapes Communications to CC

Standard & Poor's downgraded Grapes Communications NV, including cutting its senior unsecured debt to CC from CCC-. It also put the ratings on CreditWatch with negative implications.

S&P said it action follows the recent cash tender offer by Grapes for all of its €200 million 13.5% unsecured notes due 2010.

The rating agency said the tender represents 23% of the notes' face value.

It added: "Standard & Poor's views Grapes' tender offer as coercive, as refusal to accept the offer and the restructuring plan may lead to an even worse prospect of recovery for bondholders. Although the company has not defaulted under its indentures as a result of this offer, completion of the transaction would be treated as a default, at which time the corporate credit rating on the company would be lowered to SD (selective default) and the rating on the euro-denominated 13.5% senior unsecured notes would be lowered to D (default).

S&P cuts Netia debt to C

Standard & Poor's downgraded Netia Holdings SA, including cutting its senior unsecured debt to C from CCC.

S&P took the action in response to Netia's tender offer and consent solicitation for 85% of its outstanding senior unsecured notes.

The rating agency commented: "While successful completion of the offer would significantly reduce Netia's debt burden, it would leave the company with insufficient cash to continue operations beyond the first quarter of 2001, based on the current cash burn rate of about $25 million in the third quarter of 2001."

It added: "Standard & Poor's views Netia's proposed offer as coercive, as refusal to accept the offer may lead to even worse prospects for bondholders. Completion of the offer would be treated as a default with regard to the notes due in 2009, at which time the corporate credit rating would be lowered to SD (selective default) and the ratings on the euro 2009 and U.S. dollar 2009 senior unsecured notes lowered to D.

S&P raises US Unwired outlook to positive

Standard & Poor's raised its outlook on Sprint PCS affiliate US Unwired Inc. to positive from stable. It affirmed its ratings, including the senior secured bank loan at B and the subordinated debt at CCC+.

S&P said the revision is based on "improved cash flow measures, the successful migration of most the company's subscribers to Sprint PCS's billing and customer care platform, rapid subscriber growth, completion of the initial network buildout, and overall improvement in operating metrics."

The company's cash flow measures and subscriber count have exceeded S&P's expectations and it has reported two consecutive quarters of positive EBITDA.

S&P added: "Roaming revenue has been strong, and was about 36% of total revenue in the third quarter of 2001. Unlike other Sprint PCS affiliates, which will have their reciprocal roaming rate with Sprint PCS lowered to 10 cents by January 2002, US Unwired benefits from a special agreement with Sprint PCS that maintains the reciprocal roaming rate of 20 cents through 2002. This will allow US Unwired to capitalize on its favorable inbound to outbound roaming ratio that reached 1.75-to-1.0 in the third quarter of 2001. Although this ratio is expected to come down, it should stay above 1.0 over the intermediate term, as the Sprint PCS subscriber base expands rapidly."

Fitch downgrades XO

Fitch downgraded XO Communications' senior secured rating to CCC- from B, its senior unsecured rating to CC from CCC+ and its convertible subordinated note rating to C from CCC-. It also put the ratings on Rating Watch Negative.

Fitch said the downgrade reflects "the increased risk of bankruptcy due to the low degree of flexibility the company has within its bank covenants, the company's announcement that it hired an investment banking firm to help restructure its debt and the overall negative economic and industry conditions which could pressure the financial achievement that is required."

Fitch said it is specifically concerned XO will not be able to meet its fourth quarter of 2001 and its first quarter of 2002 revenue covenants of $375 million and $400 million respectively.

The willingness of the bank lenders to waive a potential technical default will likely be predicated on the details of XO's imminent restructuring, Fitch commented.

XO is funded through the first half of 2002 but Fitch said it needs to "raise a substantial amount of capital within the near term to fund the remaining portion of its business plan. Fitch believes the company is working on a restructuring plan that will be predicated on an equity infusion and a fully funded business plan post the restructuring. Based on the restructuring transactions for industry peers, this could involve a debt-for-equity recapitalization, causing debtholders to receive less than par value for their securities."

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