S&P cuts El Paso

Standard & Poor's downgraded El Paso Corp. and removed it from CreditWatch with negative implications. The outlook is negative. Ratings lowered include El Paso's senior unsecured debt, cut to B from BB-, El Paso CGP Co.'s senior unsecured debt, cut to B from BB-, Tennessee Gas Pipeline Co.'s senior unsecured debt, cut to B+ from BB, El Paso Natural Gas Co.'s senior unsecured debt, cut to B+ from BB, ANR Pipeline Co.'s senior unsecured debt, cut to B+ from BB, Colorado Interstate Gas Co.'s senior unsecured debt, cut to B+ from BB, and Southern Natural Gas Co.'s senior unsecured debt, cut to B+ from BB.

S&P said the downgrade to El Paso reflects continued reductions in cash flow estimates, heightened refinancing risk, the inability to successfully meet debt reductions goals, and a deterioration in the company's liquidity position.

Reduced cash flow expectations is due primarily to lower capital spending at the exploration and production unit while at the same time the company's financial improvement has been prolonged by the need to utilize cash to fulfill collateral and margin posting requirements versus paying down debt, S&P said. Continued deterioration in El Paso's cash flow to interest coverage measures are foreseen due to higher current and anticipated borrowing rates for all El Paso entities.

Of paramount importance to the company's ability to persevere current conditions is the renegotiation of its credit facilities ($3 billion credit facility maturing in May 2003 and a $1 billion credit facility maturing in August 2003) and regaining access to the capital markets at the holding company level, S&P said.

El Paso's ability to refinance its obligations will most likely be delayed until there is resolution to the FERC's ongoing investigation into market manipulation in California. Without such access, the company will be severely challenged to repay nearly $2.5 billion of borrowings (including the $1 billion of El Paso-guaranteed Limestone Electron notes and letters of credit) in 2003 and $3.5 billion (including the $950 million of El Paso-guaranteed Gemstone notes and assuming current borrowings of $1.5 billion are termed out) in 2004.

Thus, executing on planned asset sales (targeted at $2.9 billion in 2003) is crucial to meeting debt maturities and accounting for the continued shortfall in cash flow (expected at about $2.5 billion in 2003) versus capital spending ($2.6 billion) and dividend requirements ($200 million) in 2003, S&P added.

Moody's confirms CSC Holdings, raises liquidity rating

Moody's Investors Service confirmed Cablevision Systems Corp.'s CSC Holdings, Inc. subsidiary and raised its speculative-grade liquidity rating to SGL-3 from SGL-4. Ratings confirmed include Cablevision's $3.7 billion of senior unsecured notes and debentures at B1, $600 million of senior subordinated notes at B2 and $1.5 billion of redeemable exchangeable preferred stock at B3. The outlook is stable. The action concludes a review for further downgrade begun in August 2002 and continued after a subsequent downgrade.

Moody's said the action incorporates several recent developments and reflects certain very specific steps taken by management of late that have effectively addressed Moody's concerns about the adequacy of the company's near-term liquidity and have subsequently gone a long way towards restoring financial flexibility, which had been viewed as increasingly strained over the course of 2002.

The rating agency noted Cablevision is making asset sales through two separate transactions, the most significant of which (from a liquidity perspective) involves the pending disposition of a valuable but non-core asset. The first was the sale of the Bravo network to NBC at a very high price approximating 23x cash flow, which closed late last year. While this transaction clearly lent credence to Moody's repeated references to the high underlying value inherent in the company's asset base, the rating agency said it did relatively little to assuage its concerns about the risk of an impending liquidity erosion given the heavily stock-based component of the financing for same.

More recently, though, approximately $300 million of new liquidity has subsequently been generated following completion of several recent financings in which the GE common stock received as partial payment was monetized, Moody's said. This amount was partially offset by the requisite permanent repayment of outstandings under the company's Rainbow and AMC bank credit facilities, so the benefit was not that significant but was noteworthy nonetheless.

The second transaction, which relates to the planned sale of the Northcoast Communications PCS assets (mostly licenses) to Verizon and is scheduled to close during the second quarter of 2003, should generate a much more meaningful amount of fully retained net cash proceeds in excess of $600 million for the company, Moody's said. The company has also recently received $75 million of new junior capital in the form of convertible preferred stock that was privately issued to Quadrangle Partners.

The stable outlook reflects Moody's expectation that the company will continue to execute in its core cable operations, especially with regard to the continuing roll-out of the highly successful Optimum Online high-speed Internet service offering.

Moody's cuts B/E Aerospace

Moody's Investors Service downgraded B/E Aerospace, Inc. including cutting its $250 million 8.875% senior subordinated notes due 2011, $250 million 8% senior subordinated notes due 2008 and $200 million 9.5% senior subordinated notes due 2008 to Caa2 from B3. The outlook is stable.

Moody's said the downgrade is in response to B/E Aerospace's continued poor financial performance and debt protection measures, ongoing corporate restructuring, and an uncertain airline industry outlook.

B/E's business, affected by the unprecedented downturn in the airline industry, continued to deteriorate for a second consecutive year, Moody's noted. Revenues for nine months ended November 2002 were $455 million, a drop of 14% from the same period a year earlier ($529 million) due to a significant decline in spare parts orders and deferrals of existing seating programs. Sales in the third quarter were $145.5 million, compared to $173 million a year earlier. The company realized a net loss of $30.1 million (including $35.3 million of consolidation costs) for the nine months ended November 2002, compared to a net loss of $98.9 million (including $116 million of consolidation, acquisition and debt extinguishment costs) for the same period last year.

B/E's leverage and debt protection measures worsened. Leverage, as measured by cash adjusted debt-to-last 12 months EBITDA, adjusted for non-cash charges, increased to 9.5x in the 12 months to November 2002, compared to 7.1x in fiscal 2002, which ended February 2002 (7.0x and 6.2x, respectively, after adjustment for non-recurring restructuring charges), Moody's said.

Interest coverage weakened somewhat, with last 12 months EBIT/interest at 0.6x at November 2002, down from 0.8x in fiscal 2001. Similarly, EBITDA coverage has reduced to 1.1x in the 12 months to November 2002 from 1.6x in fiscal 2002 (1.6x and 2.0x, respectively, after adjustment for non-recurring restructuring charges).

S&P cuts Nash Finch, still on watch

Standard & Poor's downgraded Nash Finch Co. including cutting its $165 million 8.5% senior subordinated notes due 2008 to B- from B+ and its $250 million secured revolving credit facility due 2005 to B+ from BB and kept it on CreditWatch with negative implications.

S&P said the downgrade reflects its concern regarding the Jan. 28 resignation of Deloitte & Touche LLP as Nash Finch's independent auditor and the SEC's order for a formal investigation into count-recount charges assessed to the company's vendors.

Nash Finch stated in an 8-K release dated Jan. 28 that during the period of Deloitte's engagement, which commenced July 29, 2002, certain information came to Deloitte's attention, that Deloitte determined if further investigated may materially impact the fairness or reliability of a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued. However, due to Deloitte's resignation, Deloitte was not able to conclude what effect, if any, these matters have on the company's previously issued or to be issued financial statements, S&P noted.

On Oct. 30, 2002, Nash Finch postponed its third quarter 2002 earnings release due to the SEC commencing an informal inquiry into certain practices and procedures related to promotional allowances from vendors that reduce cost of goods sold, S&P added. Due to the ongoing SEC investigation, Nash Finch has yet to file its third quarter 2002 financial statements.

As Nash Finch has not obtained formal waivers from its bank group and bondholders, S&P said it believes that meaningful delays in resolving these issues could significantly pressure the company's liquidity.

Fitch says outlook for Westar still unclear

Fitch Ratings said it remains unclear whether Westar Energy will have a financial profile that supports its current ratings even if it resolves the many challenges that it faces.

Fitch added that it believes the new financial plan and the recent closing of the partial sale of Westar's Oneok investment are constructive credit events.

Notwithstanding the constructive nature of the filing and asset sale, Fitch noted that the plan's goals are ambitious and subject to execution risk.

Fitch currently has Westar on Negative Rating Watch.

Elements that may result in confirmation at the current rating level include: evidence of some flexibility on the part of the Kansas Corporation Commission with regard to its timeline and structural requirements; and a positive assessment of the commitment and ability of the new management team at Westar to deliver solid progress as a refocused utility enterprise.

Fitch cuts Citgo

Fitch Ratings downgraded Citgo Petroleum Corp.'s senior unsecured debt to B+ from BB- and assigned a B+ to its planned $550 million bond offering. Citgo remains on Rating Watch Negative as does parent company PDV America, Inc., which has a B- senior note rating.

Fitch said the downgrade reflects its concerns with the potential use of proceeds from the proposed bond offering to help pay the maturity of PDV America's $500 million of senior notes in August 2003. The rating action also reflects the continued tight liquidity position of Citgo and potential for further dividend payments to PDV America and ultimately PDVSA.

Under the proposed bond offering, Citgo can upstream dividends to PDV America towards the August maturity subject to a post-dividend liquidity of $350 million. The indentures of the proposed offering will include a limit on future dividend payments of 50% of the consolidated net income accrued during the period (treated as one accounting period) beginning Jan. 1, 2003, Fitch added.

The financial flexibility of both Citgo and PDV America has been weakened by the oil sector strike in Venezuela, which has severely disrupted the country's hydrocarbon exports, Fitch noted. As a result of the labor action, Citgo has been forced to find alternate sources for some of the crude supplied by PDVSA. Citgo typically purchases approximately 50% of its crude needs from PDVSA under long-term contracts. Citgo has been successful acquiring alternate crudes and other feedstocks to maintain refinery operations. Although crude supply from Venezuela has improved (Citgo received 86% of contractual volumes in January), spot market terms have increased working capital requirements. Given the lowered credit ratings of Citgo related entities, additional working capital requirements are possible.

The proposed offering will significantly improve near term liquidity for Citgo, Fitch said. The company is also in the process of replacing its accounts receivable program with a new $200 million facility as well as negotiating the sale of its pipeline fill inventory in the Colonial Pipeline for an estimated $100 million. Citgo is also considering a $200 million secured loan for its interest in the Colonial Pipeline.

© 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.