Many recent energy refinancings are only short-term fixes, S&P warns

By Peter Heap

New York, April 24 - Many of the recent refinancings by energy companies are only short-term fixes and have not resolved long-term issues, according to a new report by Standard & Poor's.

Frequently the extensions from bank groups have involved more burdensome terms, S&P analyst Arleen Spangler wrote, noting that they have included higher pricing, security packages that tie up assets, mandatory prepayments and cash sweep mechanisms that do not leave excess cash for unforeseen events.

"Most of the recently completed transactions remove all flexibility on the part of management to manage and control the companies' fate," Spangler wrote.

S&P added that it considers many of the current refinancings to be interim steps until the companies can gain access to the broader capital markets or improve their balance sheets through other methods such as asset sales.

"Companies still appear unwilling to part with certain assets at a price that buyers are willing to pay," Spangler wrote. "Until liquidity concerns override the long-term value of these assets, we may not see many plants change hands, therefore prolonging a 'fair-market valuation' for these assets.

"Many management teams are unwilling to accept the fact that their business mixes are unattractive and many of their assets belong in the hands of others that may have a better ability to manage the assets and ultimately extract value.

"The bank extensions have alleviated short-term credit concerns, but have not solved the underlying questions surrounding the merchant business model."

In terms of upcoming maturities, Entergy Group heads the list of refinancing needs over the next three months with a $1.5 billion bank facility due on June 1, S&P said. Second is Williams Cos., Inc. with $1.3 billion in a secured term loan and secured revolver due July 1, followed by Mirant Corp. with a $1.125 billion term loan due July 1, Calpine Corp. with a $1 billion revolver due May 1, and Duke Capital Corp. and Duke - Union Gas Ltd. with $500 million and $405 million respectively due June 1.

For the remainder of 2003, PG&E National Energy Group Inc. has the biggest need with $2.9 billion followed by AES Corp. at $2.898 billion, Duke Energy Corp. at $2.391 billion, Calpine Corp. at $2 billion and El Paso Corp. at $1.689 billion, S&P said.

Most at risk in 2003 are PG&E National Energy Group, whose $2.9 billion refinancing needs are 74% of total capitalization, Black Hills Corp., whose $244 million needs are 16% of capitalization, NRG Energy Inc., whose $1.1 billion is 13% of capitalization, AES Corp. with $2.898 billion or 13% of capitalization and Constellation Energy Group Inc. with $1.029 billion or 11%.

© 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.