S&P notes Duke plant delays

Standard & Poor's noted that Duke Energy Corp. (A/stable/A-1) has stopped construction on its 620 MW Grays Harbor plant in Washington and its 608 MW Luna plant in New Mexico.

These plants, scheduled to come on line in mid-2003, will now be delayed and, at the extreme, per Duke's Aug. 21 teleconference, could be cancelled.

Duke is evaluating the economics of completing and subsequently running these facilities in light of regional oversupply and the attendant slump in wholesale energy prices.

S&P believes this event is credit neutral. At worst, the revenue loss from these facilities will only marginally depress key financial ratios.

If the plants are delayed, S&P would look past this temporary situation.

If the plants are cancelled, capital would not be spent to complete them, which may reduce debt-financing needs.

Construction-related savings would be minimized by cancellation penalties, the figures for which are not available.

Hedges for future power sales are more portfolio-driven rather than plant specific, thus mitigating the need to unwind such hedges due to postponed start-up.

Moody's puts Unocal on review for downgrade

Moody's placed under review for possible downgrade Unocal Corp.'s Baa1 long-term debt and other long term ratings following Unocal's proposed offer to acquire the 35% of Pure Resources Inc. it does not already own.

Unocal will issue about 12 million shares in the tender. Moody's said that more than $400 million of common shares issued in the exchange will bolster Unocal's equity position.

But, Moody's noted that Pure Resources' total debt of about $570 million is currently non-recourse to and not supported by Unocal and will be incremental debt even though it is already consolidated on Unocal's balance sheet for accounting purposes.

While it is not clear whether Unocal will guarantee this debt, upon exchange the debt will become the legal obligations of a strategic wholly-owned subsidiary.

Moreover, Unocal's long-term rating outlook has been negative largely due to its elevated financial leverage within its Baa1 exploration and production peer group.

The company's own debt levels have increased by more than $200 million in 2002 as capital spending has outpaced internal cash flow.

S&P revises Unocal outlook to stable

Standard & Poor's affirmed the ratings of Unocal Corp. and revised the outlook to stable following a review of its near- and medium-term forecasts.

Unocal has about $3.12 billion in outstanding debt.

The revised outlook reflects Unocal's likely inability to achieve a financial profile consistent with a higher rating in the absence of prolonged, elevated oil and gas prices and lower-than-expected production and reserve growth.

It was anticipated that these factors would improve mid-cycle cash flow protection measures and lessen Unocal's dependence on cash flows from emerging markets.

The ratings reflect participation in the highly competitive, cyclical and capital-intensive exploration and production industry, a competitive cost structure and a large exposure to emerging markets.

S&P expects financial measures will be solid at mid-cycle pricing levels, with average EBIT interest coverage exceeding 3 times and EBITDAX interest coverage averaging above 8 times.

Lower coverage measures are possible during cyclical downturns.

Debt leverage is expected to remain moderate at around 45%, with total debt to EBITDAX averaging below 1.8 times at mid-cycle pricing, S&P said.

Unless prices remain at unusually high levels, Unocal is unlikely to generate sufficient internal funds to meet fixed charges, dividends, and nearly $1.2 billion of remaining planned capital spending.

However, sufficient liquidity is provided by two undrawn senior unsecured credit facilities totaling $1 billion that mature in 2003 and 2006 and have very loose financial covenants.

Moody's revises WPP outlook to negative

Moody's changed the outlook on WPP's Group plc's ratings (senior unsecured at Baa1) to negative from stable.

The change reflects deterioration in operating results as well as a higher level of uncertainty about near term performance as the business environment is likely to remain very challenging for some time to come.

WPP will have to manage working capital tightly to achieve the broadly neutral impact of working capital flows on its full year cash flows that is its objective. Any material increase in debt could trigger a review of the company's ratings, Moody's added.

Moody's acknowledged that WPP has no debt maturities before 2004 and near-term fixed non-operating outflows are limited to earnout payments of around £34 million for the second half of 2002 and £70 million for 2003.

In addition, interest coverage will continue to benefit from the low-coupon convertible debt issued earlier this year, Moody's said.

Should the company perform within its current guidance operationally and keep 2002 debt levels at or below 2001 levels of £968, Moody's would consider restoring the outlook to stable.

S&P rates Goodrich shelf BBB+

Standard & Poor's assigned a preliminary BBB+ rating to the senior unsecured debt securities in Goodrich Corp.'s $2.4 billion shelf registration.

The BBB+ corporate credit rating on Goodrich remains on negative watch.

S&P revises Orbital Sciences watch to positive

Standard & Poor's revised the watch implications on the ratings of Orbital Sciences Corp. to positive from developing.

At the same time, S&P assigned a CCC+ rating to Orbital's new $135 million 12% second-priority, secured notes due August 2006, the proceeds of which are to be used to pay its $100 million of convertible subordinated notes due Oct. 1, 2002. The remaining net proceeds will be used to repay a $25 million term loan.

The ratings will likely be raised after S&P meets with Orbital's management in the next few weeks to discuss the firm's future prospects and strategy now that the immediate liquidity concerns have been addressed.

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