Moody's puts EDS on review

Moody's Investors Service placed the ratings of Electronic Data Systems Corp. on review following the company's downward revision to earnings and free cash flow for 2002.

As a result, Moody's has growing concerns that there may be some ongoing risks, particularly in some of EDS' commercial contracts. While Moody's acknowledges that EDS would have remedies, this could result in further adjustments to earnings and cash flow.

Furthermore, Moody's is concerned that this cash flow weakness will extend into 2003, especially if EDS enters into large outsourcing deals.

The review has been expanded to include commercial paper and will focus on contract strength and liquidity, including free cash flow as well as potential capital expenditures.

Moody's puts El Paso on review

Moody's Investors Service placed under review for possible downgrade the ratings of El Paso Corp., including the 0% convertible at Baa2 and convertible preferreds at Baa3.

The review was prompted concern that cash flows are not likely to soon recover from the low levels in the first half of this year, plus the FERC administrative law judge recommendation that fines be imposed for withholding capacity in California, Moody's said.

Other issues include a high leverage, asset sales for debt reduction, non-merchant businesses and prospects for power projects, among other things.

Moody's noted that near-term liquidity appears sufficient. The company has maintained its cash balances at about $1 billion, net commercial paper outstanding of about $250 million.

It also has a $3 billion 364-day bank facility expiring in May 2003 and a $1 billion term loan expiring in August 2003. The 364-day facility has a term-out option and without a MAC clause.

El Paso has $240 million of short- and long-term debt maturities for the remainder of the year, which should be manageable given current liquidity.

S&P puts El Paso on watch

Standard & Poor's placed the ratings on El Paso Corp. and affiliates, including the 0% convertible at BBB and convertible preferreds at BBB-, on negative watch following the FERC administrative law judge recommendation that fines be imposed for withholding capacity in California.

The watch reflects market uncertainties regarding sustainable cash flow and the current regulatory environment, said S&P credit analyst John Whitlock.

However, liquidity is buoyed by a $4 billion credit facility backstopping commercial paper, plus cash and cash equivalents of $1.8 billion. Providing additional means to meet obligations are projected asset sale proceeds of nearly $4 billion through 2003.

With the elimination of rating and stock price triggers on all but $300 million of financings and plans to limit working capital investment in its merchant energy group to $1 billion, S&P believes El Paso has an ample liquidity to meet debt maturities of about $500 million in 2002 and $1.7 billion in 2003.

Credit quality is bolstered by steady cash flow characteristics of regulated pipeline units, which currently account for over one-third of cash flow and assets.

This strength is countered by the growing importance of investments in myriad higher-risk non-regulated businesses, including E&P, merchant energy marketing and trading, LNG, and gathering and processing.

Moody's cuts Teco Energy

Moody's Investors Service lowered Teco Energy Inc.'s ratings, including the convertible trust preferreds of Teco Capital Trust I and Teco Capital Trust II to Baa3 from Baa1. The outlook is stable.

The downgrades reflect large and highly concentrated exposure to the merchant generation markets, taking into consideration the difficult actions now being taken by management to limit the adverse effects of this exposure, Moody's said.

Moody's believes that Teco's action plan, while mitigating some of the long-term risk associated with its merchant generation portfolio, has negatively affected its credit quality in the near term.

Although the indefinite delay of the Dell and McAdams projects will save $87 million and reduce merchant market exposure in 2003, it raises the possibility of a write-off of the capital already invested in these projects.

Teco has also indicated that it is exploring various options regarding its $137 million loan related to the Odessa and Guadalupe power projects in Texas, which is due Dec. 31, 2002, raising the risk of a writeoff of all or part of this investment as well.

Moody's also notes that Teco's plan to sell assets comes at a time when numerous other companies in the power and energy sector are selling assets as well.

S&P cuts Teco Energy

Standard & Poor's lowered the ratings for Teco Energy Inc. and affiliates to 'BBB' from 'A-'. At the same time, the commercial paper rating for subsidiary Tampa Electric Co. was affirmed at 'A-2'.

The outlook is negative, reflecting substantial execution risk in its action plan and significant challenges related to activity at its power services unit, including construction commitments.

The downgrade reflects lower consolidated cash flow, higher debt balances and expected credit protection measures that are closer to a BBB corporate credit rating.

Teco has adequate liquidity with a $1 billion credit facility backstopping commercial paper but S&P noted a ratings trigger does exist for a $500 million equity bridge financing associated with two uncompleted power projects.

In the event of a trigger, Teco would have to post a letter of credit in the amount of the equity bridge loan, its remaining equity contribution and additional costs, if any, required for the completion of the projects.

Expectations of funds flow interest coverage of about 3.5x and debt-to-total capital in the mid-50% range for 2003 support current ratings, S&P said.

Moody's cuts HealthSouth

Moody's Investors Service lowered the ratings of HealthSouth Corp., including the 3.25% convertible subordinated notes due 2003 to B2 from Ba2, based on concerns due to weaker cash flow associated with Medicare reimbursement and uncertainty about the SEC investigation.

The ratings remain on review for possible further downgrade.

Moody's believes that regardless of whether HealthSouth separates from its outpatient surgery centers, credit quality has diminished.

News of the recent SEC investigation brings greater uncertainty to an already dynamic situation, Moody's added.

Moody's affirms Sprint

Moody's Investors Service affirmed the senior unsecured long-term ratings of Sprint Corp. at Baa3 as it views the sale of Sprint Publishing and Advertising for $2.23 billion as improving near-term liquidity.

The outlook for all ratings remains negative, however, driven primarily by concern over the subscriber loss expected this quarter at Sprint PCS.

In addition to the cash from the asset sale, Sprint will have access to an undrawn $1.5 billion bank facility and nearly $500 million of availability under receivable securitization programs to help repay about $1.3 billion of maturing debt over the next 12 months, Moody's said.

© 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.