Moody's confirms CMS

Moody's Investors Service confirmed CMS Energy and Consumers Energy, ending a review. The outlook is stable. Ratings confirmed include CMS' senior unsecured debt at B3, hybrid preferred stock at Caa1, senior subordinated debt at Caa2 and Consumers Energy's first mortgage bonds at Baa3, senior unsecured debt at Ba1, trust preferreds at Ba2 and preferred stock at Ba3.

Moody's said the confirmation reflects the significant progress CMS has made in executing its asset sales strategy, the accompanying moderate reduction in its debt burden, the reduced liquidity pressure resulting from the recently closed financings totaling $1.39 billion, the suspension of the common stock dividend which will help conserve cash, the clarification of auditing issues surrounding prior years' annual financial statements, and the expectation that Consumers Energy will continue to be somewhat insulated from the financial stress at CMS Energy.

Moody's said the stable outlook reflects its expectation that the financial plan devised by CMS will ease the pressures associated with its debt burden over the intermediate term and that its strategic plan, when fully implemented, will result in an organization dominated by a regulated utility with significant gas and electric assets.

While the $1.39 billion in bank financings recently completed result in significant strides to address liquidity concerns, a weak balance sheet and large capital requirements provide a continuing challenge to management as it works towards its goal to increase the company's financial flexibility, Moody's added.

The rating agency anticipates that operating performance at the unregulated operations will remain pressured over the intermediate term due to unfavorable market and economic conditions thus placing a greater significance on Consumers Energy to meet its objectives.

Moody's rates Resolution Performance notes B2, cuts existing notes

Moody's Investors Service assigned a B2 rating to of Resolution Performance Products LLC's planned $175 million notes, confirmed its bank loan ratings at B1 and downgrade its other ratings including its senior subordinated notes to Caa1 from B3. The outlook is stable.

Moody's said the rating downgrades reflect lower than anticipated earnings and creditor protection measurements in 2002 and 2003, recent increases in key petrochemical-based raw materials and expectations of continued competition in Resolution's key markets.

For 2002, Resolution's leverage (total debt/pro forma EBITDA) was 7.2x - including the $175 million of junior subordinated PIK notes of the parent holding company, which Moody's considers a component of Resolution's capital structure.

Moody's said it expects that the continued economic slowdown will adversely affect demand in the company's end-use markets, including construction and automotive, electronics and telecommunications, and demand for capital expenditure related end products.

The B1 rating of the senior secured credit facility, which is now one notch above the senior implied rating, continues to reflect the benefits and limitations of the collateral package, as well as the reduction in first-priority secured debt that will follow the new note issue.

Moody's said the stable outlook indicates that Resolution's earnings and creditor protection measures should stabilize and begin to improve in the intermediate term as Resolution moves to pass through higher raw material costs.

S&P upgrades Reliant

Standard & Poor's upgraded Ratings on Reliant Resources Inc. including raising Orion Power Holdings Inc.'s $200 million 4.5% convertible senior notes due 2008 and $375 million 12% senior notes due 2010 to CCC+ from CC and Reliant Energy Mid-Atlantic Power Holdings LLC's passthroughs to B from CCC. The CreditWatch was changed to developing from negative.

S&P said the upgrade follows Reliant's completion of its $6.2 billion global bank refinancing, which eliminates the immediate threat of insolvency by pushing off any substantial debt maturities to May 2006, and provides the company with an additional $300 million in liquidity to support collateral postings.

It also allows Reliant to exercise its option to purchase Texas GenCo Holdings Inc. if it so desires.

The developing CreditWatch reflects the overhang of the FERC's show cause order relating to power trading during the California energy crisis, S&P said. The penalty for this may be a revocation of Reliant's authority to sell power at market-based rates.

S&P cuts Neff

Standard & Poor's downgraded Neff Corp. including cutting its senior subordinated notes to CC from CCC and credit facility to CCC from B-. The ratings remain on CreditWatch with negative implications.

S&P said the downgrade is because of increased concern that Neff may not be able to meet the interest payment on its subordinated debt that is due on June 1.

Neff, a relatively modest-size equipment rental company, has experienced significant financial stress because of the weakness in the equipment-rental business and a heavy debt burden that amounts to about $280 million outstanding, S&P noted.

Neff has been operating under a forbearance agreement that prevents bank lenders from exercising remedies as a result of Neff's leverage covenant violation. The agreement expires on April 15 and the company has been negotiating with lenders to remedy the violation, which could include a restructuring of the bank line, S&P said. Because of the company's bank covenant violations and operating losses, auditors expressed doubt about the company's ability to continue as a going concern.

S&P cuts Resolution Performance, rates new notes B+

Standard & Poor's downgraded Resolution Performance Products LLC including cutting its $328 million 13.5% senior subordinated notes due 2010 to B- from B and assigned a B+ rating to its planned $175 million senior second secured notes due 2010. Resolution Performance's bank facilities were confirmed at BB-. The outlook is negative.

S&P said the downgrade is because of weak earnings and a subpar financial profile. The rating agency added that it is concerned that difficult business conditions will further delay the expected improvement in the company's financial profile. Profitability and cash flow have been negatively affected by continued soft demand and high raw material and energy costs.

The confirmation of the secured bank loan rating is based on anticipation that the proposed note issuance will be successful and that a significant portion of outstanding bank loans are prepaid with the proceeds, S&P said. The bank loan facility is rated one notch higher than the corporate credit rating. The security interest in the collateral offers strong prospects for full recovery of principal.

Resolution is highly leveraged, with a debt to EBITDA ratio of over 7x, including the PIK notes, S&P said. Despite a weak operating environment, the company has been able to generate free operating cash flow through working capital management and cost savings.

Leverage is expected to improve as earnings increase in the intermediate term, S&P added. The firm's ability to internally fund moderate working capital and investment needs at the trough of the cycle supports credit quality. Cash flow protection is weak, with EBITDA cash interest coverage less than 2.0x, but should average at least 2.5x.

S&P cuts Southwest Royalties, still on watch

Standard & Poor's downgraded Southwest Royalties Inc. including cutting its $200 million 10.5% senior notes due 2004 to CC from CCC- and kept it on CreditWatch with negative implications.

S&P said the downgrade reflects its expectation that Southwest Royalties will need to recapitalize in the near term, either in or out of bankruptcy.

The rating on Southwest Royalties reflects its very small, concentrated reserve base, extremely poor asset coverage, and its onerous debt maturity profile, S&P noted.

Southwest Royalties' $55 million bank credit facility, fully drawn and secured by a first lien on all of the company's oil and gas properties, matures in April 2004. In June 2004, Southwest has a $75 million notes issue that comes due. With modest cash on its balance sheet and annual revenue of perhaps $60 million under highly favorable commodity price assumptions, it is extremely unlikely that the company will be able to generate cash sufficient to repay both of these issues on time, short of a complete liquidation, S&P said. Prospects for refinancing with full principal repayment are quite limited.

S&P cuts HealthSouth

Standard & Poor's downgraded HealthSouth Corp. to D including cutting its senior unsecured debt, previously at CCC-, and subordinated debt, previously at CC.

S&P said the downgrade is in response to HealthSouth's failure to make its required principal and interest payments on about $345 million of subordinated convertible bonds due April 1.

S&P cuts Trenwick

Standard & Poor's downgraded Trenwick Group Ltd. including cutting Trenwick America Corp.'s $75 million 10.25% senior notes due 2004 to D from CCC-.

S&P said the action follows the non-payment of interest and principal on the $75 million senior

notes due April 1.

Although there is an agreement in principal with the beneficial holders of all the senior notes to waive the default and extend the final maturity to Aug. 1, 2003, the prospect for significant recoveries to the senior note holders is very low, S&P said.

© 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.