Moody's upgrades Pacific Gas and Electric

Moody's Investors Service upgraded Pacific Gas and Electric Co. including raising its first mortgage bonds and secured pollution control bonds to Ba3 from B3, senior unsecured notes, unsecured debentures and unsecured, unenhanced pollution control bonds to B2 from Caa2, subordinated debt to B3 from Caa3 and preferred stock to Caa1 from Ca. The outlook is positive.

Moody's said the action reflects significant progress towards resolving regulatory issues with the California Public Utilities Commission (CPUC), apparent progress towards agreement on a Plan of Reorganization and Moody's belief that the company's emergence from bankruptcy is likely to occur sometime during 2004.

The ratings also consider that Pacific Gas and Electric, while operating in bankruptcy since April 2001, is current on interest payments on all of its debt obligations, and is expected to remain current through the remainder of the bankruptcy proceeding.

Based on recent SEC and bankruptcy court filings by Pacific Gas and Electric, cash on hand, including restricted cash, at Aug. 31, 2003 was in excess of $4 billion. Cash available to pay creditor claims is expected to be around $2.5 billion at year-end 2003.

Moreover, cash from operations is expected to remain robust enough to satisfy ongoing operating and financial obligations without materially depleting the $2.5 billion in cash balances needed to satisfy creditor claims upon exiting from bankruptcy.

The positive rating outlook reflects the proposed settlement agreement between Pacific Gas and Electric, its parent PG&E Corp. and the staff of the CPUC. Under the terms of the settlement agreement, a $2.2 billion regulatory asset would be created as an additional part of the utility rate base and would be recovered pursuant to a target return on equity of 11.22% over a nine-year period. The CPUC would agree that the "headroom" revenue collected by the utility through Dec. 31, 2003 would be the property of the bankruptcy estate, available to pay claims in the bankruptcy case. Pacific Gas and Electric would dismiss litigation it had filed against the CPUC, including litigation under the filed rate doctrine. The settlement requires numerous approvals, including the CPUC, the company's Board of Directors, and the bankruptcy court.

Under the current plan of reorganization, an investment grade rating from Moody's is one of the conditions for the company to exit from bankruptcy. The current ratings are significantly below investment grade and reflect, among other things, the uncertain financial profile of the company at the time of its emergence from bankruptcy and the fact that various legal and regulatory uncertainties remain concerning the company's exit from bankruptcy.

S&P upgrades Elizabeth Arden

Standard & Poor's upgraded Elizabeth Arden Inc. including raising its $155 million 10.375% senior notes due 2007 to B- from CCC+ and $160 million 11.75% notes due 2011 to B+ from B. The outlook is stable.

S&P said the action reflects Elizabeth Arden's improved financial profile following the company's offering of common stock. Net proceeds of about $63 million will be used to redeem a portion of the company's 11¾% senior secured notes due 2011.

Elizabeth Arden's ratings reflect the company's narrow product portfolio, highly seasonal sales and concerns about the very competitive fragrance business. These factors are partially mitigated by Elizabeth Arden's solid position in fragrances and its wide distribution, especially in the high growth mass-merchandising trade channel, S&P said.

The company's operating performance improved during the 12 months ended July 26, 2003, compared with fiscal 2002 (ended Jan. 31, 2002) as evidenced by the 14% growth in revenues and 25% increase in operating profits. The better sales performance was due to expanded distribution, successful new product launches and increased marketing support. Furthermore, a higher gross margin, better leveraging of the company's cost structure, and favorable foreign currency translation aided the operating margin.

Following the company's redemption of a portion of senior secured notes, S&P estimates that operating lease-adjusted total debt to EBITDA will be about 3x for fiscal 2004 (ending Jan. 31), an improvement from 4x at fiscal 2003.

S&P says Goodyear unchanged

Standard & Poor's said Goodyear Tire & Rubber Co.'s ratings including its corporate credit at BB- with a negative outlook are unchanged on the news that the company will restate its financial results dating back to 1998.

Goodyear expects to report third-quarter earnings in mid-November along with filing the restated financials.

S&P said it believes the restatements will not materially weaken the company's liquidity position or reduce access to its bank credit facilities. In addition, the earnings and cash flow impact for 2003 is expected to be relatively minor.

The restatements are related to adjustments resulting from the implementation of an enterprise resource planning accounting system in 1999 and errors in intercompany billing systems. The adjustments will decrease previously reported net income by $100 million. Included in the $100 million are certain charges that were recorded in the first half of 2003 that will be moved to prior years, reducing the company's net loss for the 2003 year.

Moody's upgrades Paxson liquidity

Moody's Investors Service raised its speculative-grade liquidity rating for Paxson Communications Corp. to SGL-2 from SGL-3.

Moody's said the upgrade is in response to the recent amendment of financial covenants under the company's bank credit facility. Paxson was previously expected to be out of compliance with its bank financial covenants in 2004.

The SGL-2 rating reflects the company's good liquidity position, as now projected, mostly as a result of the company's very substantial cash balances (about $100 million) and the continued prospect of asset sales, counter-balanced by the ongoing uncertainty regarding the company's ability to generate free cash flow.

Moody's believes that despite challenges related to Paxson's overall operating strategy, lack of revolver capacity, and weak, albeit improving, cash flow profile, the company's near-term liquidity is sufficient to comfortably service all of its obligations, including capital expenditures. Moreover, Paxson has a large portfolio of stations which, to date, have sold at attractive prices, and will presumably be available as an alternative source of liquidity again when needed.

© 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.