Moody's cuts NUI

Moody's Investors Service downgraded NUI Utilities, Inc. including cutting its senior unsecured debt to Ba3 from Ba1 and parent NUI Corp.'s senior unsecured debt to B3 from B1. The outlook for both is developing.

Moody's said the action follows its review begun on Sept. 26 after the company announced its board of directors had put the entire corporation up for sale.

Moody's action reflects the difficult business conditions affecting NUI Corp. as well as the limited progress achieved to-date in selling non-core assets. These factors have significantly limited the company's financial flexibility. The rating downgrades also take into account the financial relationship between NUI Corp. and NUI Utilities.

Currently, NUI Corp. owes NUI Utilities a significant sum as a result of inter-company transactions. The lower rating for NUI Corp. also reflects the structural subordination of its debt relative to that of NUI Utilities.

Moody's noted NUI Utilities is seeking a $50 million seasonal and temporary line of credit. If obtained, Moody's said it would view this line favorably.

Moody's added that it believes it will take some time to identify a creditworthy buyer as the assets are diverse and are located in various states necessitating multiple regulatory approvals from regulators having different jurisdictions. In the meantime, the company will continue to incur rising O&M expenses as it employs an array of outside advisors and consultants to help manage day to day operations while it searches for a suitable buyer, even as it searches for other ways to cut costs.

Moody's rates Banco de Oro notes Ba2

Moody's Investors Service has assigned a Ba2 rating to Banco de Oro Universal Bank's $125 million senior unsecured debt issue due 2008. The outlook is negative.

The rating recognizes that the proposed issue represents Banco de Oro Universal Bank's senior obligations. It also reflects the bank's moderate capability to service its debt obligations, given that its financial profile is characteristic of banks with D bank financial strength ratings.

Moody's rates Paramount Resources notes B2

Moody's Investors Service assigned a B2 rating to Paramount Resources Ltd.'s proposed $150 million seven-year senior unsecured notes. The outlook is stable.

Proceeds will repay Canadian dollar bank debt. After the offering, and reduced bank debt after the Oct. 1, 2003 sale of Sturgeon Lake reserves for C$54 million, Paramount's proposed secured bank revolver would also have a $150 million (C$203 million) borrowing base with roughly $18 million (C$24 million) borrowed.

Moody's said the ratings are restrained by: a need to substantially reduce very high reserve replacement costs; full pro forma leverage on proven developed (PD) reserves; a short 4.8 year PD reserve life; a relatively small reserve base with 50% concentrated in the Kaybob Field; and the fact that Paramount is an active seller of reserves to related Paramount Energy Trust.

After paying US$17.94/boe (C$24.28/boe) for $259 million (C$350 million) of 2002 acquisitions, incurring drilling disappointments, and front-end funding development costs at core Kaybob Field, Paramount's three-year average reserve replacement costs soared to an unsustainable $20.21boe (C$27.35/boe). All volumes are calculated per U.S. convention (net, net at a 6:1 gas to oil conversion ratio).

Rating support derives from satisfactory unit production, G&A, and interest costs; good pro forma liquidity; expected firming production; and improving cash flow (if prices remain firm) before reserve replacement costs. If Paramount were not burdened by below-market hedges, high up-cycle prices would have more closely internally funded Paramount's very high reserve replacement costs, Moody's said. These hedges expire in October 2003. Much of Kaybob's front-end costs are now funded too and higher Kaybob production is expected. Leverage on PD reserves is full but acceptable for the ratings, pro-forma for the fully priced sale of 2.9 mmboe of Sturgeon Lake reserves for C$54 million.

The outlook is stable and will firm or weaken depending on whether 2003 unit reserve replacement costs substantially improve from an unsupportable $20.21/boe of 2002 three year average reserve replacement costs.

S&P puts Atlantic Coast on developing watch

Standard & Poor's put Atlantic Coast Airlines Holdings on CreditWatch developing including its corporate credit rating at B- and $23.333 million 8.75% passthrough certificates series 1997-1C due 2007 at B, $24.734 million 7.35% passthrough certificates series 1997-1B due 2011 at B+ and $57.714 million 7.2% passthrough certificates series 1997-A due 2014 at BBB-.

S&P said the action follows an announcement by Mesa Air Group Inc., another regional airline holding company, of an unsolicited, all-stock offer to buy Atlantic Coast Airlines Holdings.

Atlantic Coast Airlines has been involved in difficult negotiations with United about compensation for flying as a United Express regional partner and recently announced that it planned to end that relationship when United exits bankruptcy and instead focus most of its resources on providing low-fare service from Dulles Airport.

United and Mesa announced an agreement in July 2003 under which Mesa would start flying as a United Express carrier, potentially at Dulles Airport.

S&P said Atlantic Coast's current ratings reflect its relatively modest market position within the high-risk U.S. airline industry and a substantial operating lease burden, mitigated to some extent by revenue stability that has been provided by fee-per-departure contracts with major airline partners.

Atlantic Coast currently operates two regional airlines that offer feeder service for United and Delta, primarily along the East Coast and in the Midwest and Canada, under fee-per-departure agreements. These agreements reduce operating and financial risks for a regional airline in periods of economic weakness, resulting in more stable earnings and cash flow. United and Delta have both reduced capacity in their mainline operations since 2001, some of which has been replaced through their feeder partners. As a result, Atlantic Coast's operations have continued to grow even in the current adverse airline environment.

S&P said Atlantic Coast's planned transition to a low-fare independent airline would entail significant risks. While the company benefits from its large market presence at Dulles, where there is presently no low-fare competition, it could find itself competing against other low-fare carriers at relatively nearby airports (e.g. Southwest Airlines Co. at Baltimore), and replacement United Express partners at Dulles. In addition, there will be less stability in the company's revenues and cash flow than it enjoyed under the fee-per-departure agreement it had with United.

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