S&P raises EES Coke outlook

Standard & Poor's raised its outlook on EES Coke Battery, LLC to positive from negative including its $75 million 9.382% senior secured notes series B due 2007 at CCC+.

S&P said the revision follows its review of the credit and conclusion that the combination of the May 2003 purchase of National Steel's assets by United States Steel Corp. (BB-/negative), improved facility operations and current pricing in coke markets make the rating more likely to increase than decrease or stay the same over the next 12 months.

National Steel filed for bankruptcy in March 2002, but the Zug Island facility and the project have continued to operate, S&P noted. U.S. Steel purchased National Steel's assets in May, and the project has a letter agreement with U.S. Steel to operate under its original contract until the end of the year, but is in negotiations with U.S. Steel for a new contract. EES Coke has represented that it is both its and U.S. Steel's desire to enter into a long-term contract.

S&P said it believes that since U.S. Steel will likely continue operating the Zug Island plant and because the project provides a necessary commodity at a price that is currently economic an agreement is likely.

An upgrade will depend on the terms and conditions of the new contract and the resulting project economics, given that the project still obtains substantial cash flow from a tax-sharing agreement with the partners based on their realization of net operating loss tax credits, S&P noted.

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