S&P lowers Calpine outlook

Standard & Poor's lowered its outlook on Calpine Corp. to negative from stable due to erosion in the capital and bank markets for refinancings in light of Calpine's pending $5.5 billion refinancing requirement over the next two years.

Recently, energy companies have encountered difficulties in refinancing bank loans and other maturities coming due and credit spreads have dramatically increased, S&P said. Banks also are requiring cash sweeps and prepayment provisions.

The current investment climate foreshadows a difficult refinancing for Calpine's coming maturities, and Calpine has insufficient cash flow to retire the debt with internal cash flow, S&P added.

Additionally, the refinanced debt may be at higher interest rates, which could place negative pressure on Calpine's credit profile.

Despite difficult market conditions, S&P noted, however, that Calpine has successfully raised $3 billion of new capital thus far in 2002.

While Calpine's revolving and term loan B credit facilities are, in S&P's view, about two times overcollateralized, any refinancing may come at a substantially higher interest rate.

In addition to refinancing risk, the BB corporate credit rating reflects risks associated with funding construction and maintenance capital requirements in 2003 and undesirable new electricity contracts given current depressed electricity prices, among other things.

Nonetheless, certain strengths adequately mitigate the risks at the BB rating level, including Calpine's quick adjustment to the collapse in U.S. power markets by drastically cutting back on growth plans and its success at selling assets to shore up liquidity, among other things.

Moody's cuts TXU Europe

Moody's Investors Service downgraded the senior unsecured debt ratings of TXU Europe Ltd. and Energy Group Overseas BV to Ca from Caa2, along with other ratings on the European units of TXU Corp.

The downgrades follow the failure by TXU Europe to make a scheduled interest payment on Wednesday on the $200 million bonds due in 2017.

Whilst TXU Europe has a 30 day grace period to make the payment, Moody's definition of default includes missed or delayed disbursement of interest and/or principal, including delayed payments made within a grace period.

S&P lowers Cypress outlook

Standard & Poor's affirmed the B rating on Cypress Semiconductor Corp.'s two convertible issues but cut the outlook to negative from stable.

The outlook reflects ongoing stresses in the data networking and computing markets as well as diminished financial flexibility, S&P said. If the company does not substantially improve its profitability, or if business conditions continue to erode, ratings could be lowered.

EBITDA for the four quarters ended Sept. 30 was $77 million and pro forma debt to EBITDA was about 7x.

Cash and equivalent balances at Sept. 30, including restricted cash, were $234 million, while the company expects to retain cash balances above $200 million through the current business cycle.

This level of liquidity provides relatively little cushion for any unforeseen circumstances, as Cypress does not have a revolving credit agreement, S&P said.

Capital expenditures, which were $175 million in 2001, are expected to be $180 million in 2002.

Cypress has also used cash to repurchase debt, $102 million face amount since November 2001. The repurchases have been made at a discount and to help reduce interest expenses, although they have also weakened financial flexibility.

S&P changes Vivendi watch to developing

Standard & Poor's changed its CreditWatch on Vivendi Univeral SA to developing from negative. Ratings affected include Vivendi's bonds, convertible and exchangeable bonds and bank debt at B+, Houghton Mifflin Co.'s notes at B+, Seagram Co. Ltd.'s debentures, notes, bonds and adjustable conversion rate equity security units at B+ and Joseph E. Seagram & Sons Inc.'s debentures, bonds, senior notes and senior quarterly income debt securities at B+.

S&P said the change is in response to news that Vivendi has reached an agreement with two international banks to refinance the $1.62 billion bridge loan at its U.S. media subsidiary Vivendi Universal Entertainment with a new secured bridge loan for the same amount, maturing in June 2003.

Although liquidity will remain tight over the next 18 months, S&P said it believes that the group has overcome most of its near-term refinancing challenges.

Completion of management's asset-disposal program and enhanced cash flow generation will be key for a gradual strengthening of Vivendi's financial flexibility, but existing cash balances and available credit lines are deemed sufficient over the intermediate term, S&P added.

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