Moody's puts Premcor on upgrade review

Moody's Investors Service put Premcor USA, Premcor Refining Group and Port Arthur Finance Corp. on review for upgrade, affecting $1.566 billion of debt. Ratings affected include Premcor USA's senior unsecured notes at B1 and $40 million of 11.5% subordinated notes due 2009 at B2, Premcor Refining's $650million senior secured bank revolver and term loan at Ba2, $110 million 8.625% senior unsecured notes due 2008, $100 million 8.375% senior unsecured notes due 2007, and $240 million floating-rate term loan due 2003 and 2004 at Ba3 and $175 million 8.875% senior subordinated notes due 2007 at B2 and Port Arthur Finance's $251 million 12.5% senior secured notes due 2009 at Ba3.

Moody's said it began the review in response to the potential credit-enhancing impact of Premcor Inc.'s pending $465 million acquisition of, and funding plans for, Williams Cos.' 170,000 throughput barrel per day Memphis refinery, including the refinery, important terminal and storage assets vital to the refinery's value, and $150 million of inventory.

The $315 million base purchase price is potentially appealing, the proposed financing plan is supportive of sustaining a long-term growth-by-acquisition strategy in a volatile sector, and the back-up financing plan may be adequate as an interim measure, Moody's said. Excluding the up to $75 million earn-out for upside performance, $315 million equates to $270 per daily complexity barrel and $1,853 per daily throughput barrel.

The refinery would add an important third leg to Premcor's refining portfolio, strengthen its light sweet crude oil sourcing and logistics for Lima and Memphis, strengthen Premcor's regional refined product logistics, and postpone the need to complete heavy low sulfur fuels capital spending at the Lima refinery for another year until January 1, 2006, Moody's said.

While it will take several quarters of operating and market conditions to assess what Memphis earnings will generate within the Premcor system, Premcor believes that the unit could generate roughly $127 million of EBITDA per year, assuming average Gulf Coast 2-1-1 crack spreads of $3.25/barrel plus transportation differential, Moody's noted.

As proposed, the primary and back-up financing plans are sound, Moody's said. The primary plan includes roughly $230 million of equity before the acquisition closes (scheduled for first quarter 2003), with the remainder funded in the bond market and by increasing Premcor's crude oil inventory funding program with Morgan Stanley. Premcor's controlling shareholder group (The Blackstone Group, Occidental Petroleum, and CEO Tom O'Malley) has agreed to take $65 million of equity to support the offering. A fairly robust back-up financing plan, as it is known to Moody's, includes (1) substantial equity, (2) a bridge loan from Morgan Stanley, and (3) inventory funding from Morgan Stanley.

Assuming the primary funding plan is executed, the pro-forma capital structure would include roughly $1.050 billion of debt ($1.2 billion of effective debt) and $1.1 billion of book equity, Moody's said.

S&P says Premcor unchanged

Standard & Poor's said Premcor Refining Group Inc. remains unchanged at a BB- corporate credit rating with a stable outlook following the company's announcement that it has signed an agreement to purchase the Williams Cos. Inc.'s Memphis refinery and related supply and distribution assets for $465 million, excluding a potential earn-out payment of $75 million.

The acquisition will enhance Premcor's credit profile by improving its scale and scope of operations, adding a unit that should capable of generating free cash flow in excess of expected capital expenditures, and reducing the company's debt leverage, S&P said. Premcor is committed to financing the transaction by issuing common equity equal to at least 50% of the purchase price.

However, Premcor faces material clean fuels capital expenditures in 2004 and 2005, which (in conjunction with already high finance expenses) could strain the company's available capital resources if margins fall below mid-cycle levels in those years, S&P added.

S&P said it believes Premcor's management is committed to improving its credit ratings, but, in the absence of further deleveraging transactions, positive ratings actions will be highly dependent on the company husbanding enough liquidity to comfortably fund its anticipated peak capital expenditures.

Moody's cuts Orion Power, Reliant Mid-Atlantic

Moody's Investors Service downgraded Orion Power Holdings' senior unsecured debt to B3 from Ba3 and Reliant Energy Mid-Atlantic's senior secured debt to B3 from Ba3. The ratings remain on review for downgrade.

The new ratings align the companies with their parent Reliant Resources, Inc.

Both Orion and REMA have been adversely affected by weak merchant power markets and Moody's said it expects that wholesale prices will remain depressed for at least two years due to substantial excess capacity.

In the case of Orion, the downgrade also reflects Moody's expectations that project subsidiaries, Orion Midwest and Orion New York, will not upstream meaningful amounts of cash.

Following the refinancing of bank debt at Orion Midwest and Orion New York on Oct. 29, cash traps at these subsidiaries will likely inhibit the availability of funds from the projects to service Orion's $400 million bond issue.

As a result, Reliant Resources intends to meet debt service obligations on the bond, but is not legally obligated to do so, Moody's said.

In the case of Reliant Energy Mid-Atlantic, depressed performance as a merchant generator drove the ratings downgrade, Moody's said. Although a large portion of Reliant Energy Mid-Atlantic's debt has amortized, reducing lease service requirements below $100 million per year, $578 million of lease pass through certificates remain outstanding.

S&P cuts Massey Energy to junk

Standard & Poor's downgraded Massey Energy Co. and put it on CreditWatch with developing implications. Ratings lowered include Massey Energy's $150 million 364-day revolving credit facility and $250 million 3-year senior secured revolving credit facility due 2003, cut to BB+ from BBB-, and $300 million 6.95% notes due 2007, cut to B+ from BBB-.

Although Massey Energy was successful in extending its 364-day $150 million revolving credit facility that matured in November 2002, S&P said it views the removal of the one-year term-out feature from the facility as tantamount to a lack of bank support and flexibility.

In light of the company's recent unsuccessful attempt to refinance its existing $400 million of unsecured bank credit facilities with a new $525 million bank facility due to lender concerns about Massey's exposure to the turmoil in the power-generating electric utility industry, Massey faces uncertain prospects of accessing tumultuous capital markets in order to refinance the $301 million currently outstanding under its 364-day $150 million and three-year $250 million facilities maturing on Nov. 25, 2003, S&P said. Estimated free cash flow will be insufficient to meet both facilities' maturity.

In the event Massey is successful in accessing capital markets to meet maturing facilities, ratings could be raised, S&P said. Given the economic importance of the coal industry to the Appalachian region, and the region's importance to the nation's coal-fired electrical supply, it is unlikely the valley-fill ruling will be upheld in its current form. Rather, S&P believes that the ruling will be overturned or an amenable solution - either through a compromise or a change to the existing regulation that is amicable to all parties-will be the final outcome of the litigation.

In the event of an adverse ruling, Massey has permitted all of its expected production in 2003 and a substantial portion of its projected production for the following four years.

Moody's rates Massey Energy's loan Ba1, cuts notes

Moody's Investors Service rated Massey Energy Co.'s $250 million and $150 million guaranteed secured bank facilities due Nov. 25, 2003 at Ba1. The facilities are secured by receivables, inventory, subsidiary capital stock and certain other assets. Also, upstream guarantees from all domestic operating subsidiaries have been granted to the bank loans.

Furthermore, Moody's downgraded $300 million of 6.95% senior unsecured notes Ba3 from Ba1 due to the weakened position of the notes in the capital structure as a result of the security and guarantee provided to the credit facilities. The outlook is stable.

Ratings reflect challenges facing the company in reducing production costs, continued weak fundamentals in the coal industry, event risks and potential funding requirements from pending regulatory and legal issues, operating risk in reactivating mines, developing mines or moving production in existing mines and the refinancing risk faced due to the short maturity of the extended and amended credit facilities, Moody's said.

The stable outlook reflects the company's competitive position in the eastern coal industry and in the Central Appalachia region, and the longevity of its reserve position, Moody's added.

Moody's added that it lowered the notes because of their weakened position in Massey's capital structure as a result of the security and guarantee enhancement provided to the bank facilities.

S&P rates Brickman loan BB-, notes B

Standard & Poor's assigned a BB- rating to The Brickman Group Ltd.'s planned $80 million credit facility and a B rating to its proposed $150 million senior subordinated notes due 2009. The outlook is stable.

Proceeds will be used to fund a leveraged recapitalization.

S&P said the ratings reflect Brickman's narrow focus, limited financial flexibility, and high debt leverage pro forma for its recapitalization. These factors are somewhat mitigated by the company's strong position within the highly fragmented commercial landscape maintenance service market and by favorable industry growth prospects.

Although Brickman is one of only two national providers, the company is focused solely on the U.S. commercial landscape maintenance services market, S&P said. This market is highly fragmented, with more than 45,000 regional competitors, and pricing flexibility is limited. The company's broad geographic presence and maintenance contracts with diverse customers somewhat limit the risk from changes in a single market and provide a stream of recurring revenue.

Approximately 59% of the company's total revenues were derived from services under contract for the 12 months ended Sept. 30, 2002. While the majority of the company's maintenance contracts are for only one year, Brickman has retained about 90% of these customers during the past five years, S&P noted. Moreover, the contracts generally stipulate a minimum of services to be provided, and are billed throughout the year, thereby reducing working capital requirements and somewhat mitigating the effect of unfavorable weather conditions.

Growth opportunities within the commercial landscape maintenance service market are expected from continued corporate migration away from urban areas to office parks, combined with significant consolidation within the U.S. commercial real estate market, and a trend by real estate owners and managers toward the outsourcing of non-core activities, S&P said.

Debt leverage is high and will increase substantially following the company's proposed transaction. Accordingly, pro forma EBITDA coverage of interest (adjusted for operating leases) will be about 2.3 times and total debt to EBITDA will be about 4.9x (total debt is adjusted for operating leases and includes about $30 million of payment-in-kind (PIK) preferred stock at the holding company, with a mandatory redemption after the subordinated debt matures), S&P said.

However, acquisitions are not incorporated in the rating and Brickman's financial profile is expected to improve in the near-term, as the company uses its free cash flow to reduce debt.

Moody's confirms Restaurant Co.

Moody's Investors Service confirmed The Restaurant Co. including its $130 million 10.125% senior notes due 2007 at B1 and maintained its stable outlook.

Moody's said it re-examined the company's rating in response to analysis of operating performance during the current economic slowdown and the renewed focus on growth through franchisee unit openings.

The ratings reflect the company's leveraged financial condition, the intense competition within the full service dining segment of the restaurant industry, and the necessity to frequently update the store base in order to remain relevant to consumers, Moody's said. Additionally, reliance on several large independent franchisees and the exposure of the company's revenue to overall economic activity in a few key regions such as Minnesota, Florida, Pennsylvania, and Ohio restrain ratings at the current level.

However, the ratings acknowledge the company's ability to generate good returns on sales and assets, its balanced day-part mix between breakfast, lunch, and dinner, and the strength of the established "Perkins" franchise in its core Midwestern and Southeastern markets, Moody's added. The business model that requires franchisees to invest their own capital in most new stores and the relatively steady royalty revenue that generates a disproportionate share of cash flow also benefits the company.

The stable outlook reflects Moody's expectation that the company will be able to maintain current average unit volumes and restaurant margins, in spite of the high level of full service dining competition.

Moody's confirms National Wine & Spirits

Moody's Investors Service confirmed National Wine & Spirits Inc. Holding Corp.'s $60 million secured credit facility at Ba3 and $110 million 10.125% senior unsecured notes due 2009 at B2. The rating outlook is stable.

Ratings were confirmed since "the company has maintained its financial profile within the tolerance of its existing ratings categories in spite of on-going pressures on the company's top and bottom line from less than optimal product mix," Moody's said.

Ratings reflect the expectation of continued margin pressure throughout the intermediate term as the company replaces business for lost brands and the potential loss of accounts due to additional supplier-led reallocation of brands, Moody's said. Furthermore, ratings reflect risks from consolidation and increased competition.

Positively affecting the ratings is the company's good return on assets, solid free cash flow relative to total debt, well-established distribution network and long-term relationships with its suppliers and customers.

Debt to EBITDA was close to four times for the 12 months to Sept. 30, 2002. However, liquidity seems adequate as the company generates sufficient cash from operations to fund working capital and capital expenditures. At Sept. 30, the $60 million revolver was undrawn.

Moody's rates Turning Stone notes B1

Moody's Investors Service assigned a B1 rating to Turning Stone Casino Resort Enterprise's proposed $125 million offering of senior notes due 2010. The outlook is stable.

Moody's said the ratings reflect Turning Stone's small cash flow base, dependence on a single market, construction and expansion risks, the ability to make substantial distributions, and pending litigation regarding multi-game machines.

The ratings also acknowledge the likely difficulty that senior unsecured bondholders would face in recovering their investment in a liquidation scenario, Moody's said. Currently, there is also uncertainty regarding whether an Indian Tribe can be a debtor under U.S. bankruptcy law, and whether a creditor would be protected under that same law.

Positive ratings consideration is given to the required $120 million equity contribution that will be used to fund a portion of the expansion project, Moody's added. Also considered are positive historical performance trends and Moody's expectation that a significant portion of the expanded capacity from its $308 million expansion project will be easily absorbed.

Following two previous expansions, Turning Stone's operating results continued to improve, suggesting that there is additional demand in the market area surrounding the facility, Moody's said. From September 1997 through June 2002, the number of multi-game machines has increased to 1,832 from 1,126, while the daily win per unit has increased over that same period to $159 from $113. Currently, the casino is operating at near capacity during the weekends, and weekend hotel utilization is at 98%.

The stable rating outlook is based on Moody's expectation that debt/EBITDA will remain within 3.0x during the construction period, and that although the Enterprise has the ability to incur additional debt, it will not borrow a material amount of additional debt through the construction period. Additional debt will be limited by a 2.5x fixed charge coverage incurrence test that increases to 3.0x in 2005.

Fitch cuts Reliant Resources, still on watch

Fitch Ratings downgraded Reliant Resources, Inc.'s senior unsecured debt to B from BB and kept it on Rating Watch Negative.

Fitch said the rating watch continues pending successful completion of debt refinancing.

Fitch said it lowered Reliant Resources need to restructure or refinance approximately $5.7 billion of outstanding corporate level bank debt and synthetic lease obligations, including a $2.9 billion bridge loan due February 2003 used to acquire the assets of Orion Power Holdings.

While the recent refinancing of approximately $1.33 billion of Orion subsidiary level debt completed an important first step in Reliant Resources' overall debt restructuring plan, revised terms substantially restrict Reliant Resources' ability to use cash from Orion to service Reliant Resources corporate level debt, Fitch said.

Moreover, the tightening bank credit environment for energy merchants in general could frustrate Reliant Resources' efforts to complete its planned global bank refinancing.

Reliant Resources has publicly acknowledged that a Chapter 11 reorganization is an alternative if it is unable to extend its current bank exposure, Fitch said.

Moody's rates Lyondell liquidity SGL-2

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Lyondell Chemical Co.

Moody's said the SGL-2 assessment reflects good liquidity, and considers the sizable cash balance held by Lyondell, limited reliance on secured bank credit, modest near-term debt maturities and positive free cash flow in the trough of the current cycle.

In June, Lyondell renegotiated its credit facilities to allow significant cushion in meeting the financial covenants through 2004. This $350 million revolving credit facility is anticipated to remain undrawn due to roughly $450 million of cash on Lyondell's balance sheet, Moody's noted.

Working capital requirements, even with another spike in oil and gas prices, and capital expenditures are anticipated to be modest relative to the level of cash on the balance sheet.

Debt maturities are modest with less than $10 million maturing by year-end 2003, Moody's said. Lyondell also has access to an $85 million accounts receivable program.

Constraining the ratings is Moody's expectation that cash required for working capital may be extremely volatile through year-end 2003, and Moody's assumption that Lyondell will not receive two dividends from its primary affiliates (two majority-owned joint ventures). These assumptions are based on the potential for volatile oil and natural gas prices over the next 12-18 months, continuation of a weak U.S. industrial economy, and uncertainty over the supply of heavy crude oil from Venezuela to LCR. Volatility in oil and natural gas prices can have a dramatic impact on the cash required for working capital at Lyondell and Equistar.

Moody's rates Equistar liquidity SGL-3

Moody's Investors Service assigned an SGL-3 speculative-grade liquidity rating to Equistar Chemicals, LP.

Moody's said the assessment reflects Equistar's adequate liquidity and the potential for substantial volatility in working capital and limited free cash flow generation through year-end 2003.

The SGL-3 rating is supported by the modest cash balance held by Equistar, moderate access to secured bank credit, and modest near-term debt maturities.

Equistar maintains a $450 million revolving credit facility, which is currently undrawn, as the primary source of liquidity for potential working capital requirements, Moody's noted. In addition, Equistar has access to a new $100 million accounts-receivable program, which is largely utilized.

In March, Equistar renegotiated its credit facilities to relax the financial covenants through year-end 2003. Currently, Equistar has the ability to draw down roughly $425 million on its revolver without violating its financial covenants. The credit facility's financial covenants tighten quarterly through year-end 2004, with the adjusted debt to adjusted EBITDA ratio falling to 5 times and the adjusted EBITDA/adjusted interest expense ratio rising to 3 times by year-end 2004.

Volatility in natural gas and oil prices has a dramatic impact on raw material costs and working capital requirements for Equistar, Moody's said, adding that it believes that the largest potential use of cash will be to support working capital if another spike in oil and gas prices occurs in 2002 or 2003. Debt maturities are modest with less than $30 million maturing by year-end 2003.

S&P puts Land O'Lakes on watch

Standard & Poor's put Land O'Lakes Inc. on CreditWatch with negative implications. Ratings affected include Land O'Lakes' $250 million senior secured revolving credit facility due 2006, $250 million tranche B term facility due 2008 and $325 million tranche A term facility due 2006 at BB, $350 million 8.75% notes due 2011 at B+ and Land O'Lakes Capital Trust I's $200 million 7.45% capital securities (TOPrS) at B-.

S&P said the watch placement follows Land O'Lakes' disclosure in its 10-Q that Cheese & Protein International LLC, a cheese and whey joint venture with Mitsui of Japan (30% owner), will likely not meet the fixed charge coverage test at year end, which would constitute a default under the synthetic lease.

Cheese & Protein is in discussions with its bank group for a waiver and amendment to the lease agreement, S&P noted.

S&P lowers Cole National outlook

Standard & Poor's lowered its outlook on Cole National Group Inc. to negative from stable and confirmed the company's ratings including its senior secured bank loan at BB+ and subordinated debt at B.

The outlook revision reflects Cole's announcement that it will restate its historical financial statements since 1998 as a result of a change in the company's accounting treatment for the timing of the recognition of revenues earned on the sale of optical warranties, S&P said. Upon the advice of its new auditors, Cole determined that the up-front payment should be recognized over the warranty period.

The outlook reflects the uncertainty of whether any additional accounting issues come to light during the review, S&P said. Ratings could be lowered if additional accounting issues significantly impact the company's credit measures or if the company fails to obtain an amendment to its credit facility. However, the outlook could be revised to stable if the impact of the restatement is not material and operating performance is sustained.

The accounting change has no impact on cash flow and should reduce earnings for the six months ended Aug. 2, 2002 by about $800,000 to $1.7 million. In addition, Cole announced that it will delay the filing of its Form 10-Q for the third quarter of 2002 and anticipates that the required restatements will be available by early May 2003, when the company is required to file its Form 10-K for fiscal 2002.

Cole obtained a waiver through Dec. 31, 2002 from its bank lenders and is currently negotiating an amendment to its $75 million revolving credit facility, S&P said. This credit facility was undrawn for the quarter ended Nov. 2, 2002.

Moody's rates Lyondell notes Ba3

Moody's Investors Service assigned a Ba3 rating Lyondell Chemical Co.'s $337 million of 9½% senior secured notes due in 2008 and confirmed the company's existing ratings including its senior secured debt and secured credit facility at Ba3. The outlook remains stable.

Lyondell's ratings are supported by the company's position as a leading global supplier of propylene oxide and certain derivatives, as well as a leading North American supplier of commodity petrochemicals and substantial back-integration through majority owned joint ventures, Moody's said.

Despite the length and depth of the current trough in commodity petrochemicals and plastics, Lyondell's Ba3 ratings have been maintained due to the consistency of management's financial policies (i.e. constant focus on debt reduction), sizable cash balances, and their ability to maintain free-cash flow breakeven, Moody's added.

These actions have prevented any significant increase in debt over the past three years, unlike many other commodity producers.

The stable ratings outlook reflects Moody's belief that Lyondell will continue to endure trough-like conditions, but that financial performance will improve modestly in 2003.

Moody's cuts American Restaurant

Moody's Investors Service downgraded American Restaurant Group, Inc. and American Restaurant Group Holdings, Inc. The outlook is negative. Ratings lowered include American Restaurant's $161.8 million senior secured notes due 2006, cut to B3 from B2, $65.6 million 15.0% PIK preferred stock due August 2003, cut to Caa3 from Caa2, and $154.4 million 14.0% senior discount debentures due 2005, cut to C from Ca.

Moody's said it lowered American Restaurant because of the effects of weak average checks on financial and operational measures such as comparable store sales, restaurant margins, and leverage as well as the adverse impact of decreased cash flow on the company's liquidity position.

The ratings recognize the company's leveraged financial condition (especially adjusted for operating lease obligations), the limited ability to absorb further adverse changes in operating cash flow, and the intense rivalry in the casual dining segment of the restaurant industry, Moody's said. Limited ability to buffer volatile commodity food costs given the company's identification as a steakhouse and the significant revenue correlation with economic conditions in California also impact our view of the risks facing the company.

However, the ratings consider the expected long-term trends for increased dining out at casual dining restaurants and increased beef consumption, Moody's opinion that many demographically favorable locations across the West remain to be developed, and the positive contribution of about 95% of the company's stores.

The potentially meaningful value of the trade name "Black Angus", which is well known in the Western U.S., also benefits the company, Moody's said.

Moody's said the negative outlook reflects its concerns that the company may not be able to make substantial improvements until erosion in average check reverses and that, without stabilization of operating performance and establishment of satisfactory covenants for 2003, the company will not have the liquidity resources to accommodate cash interest payments, debt principal repayments, minimal capital expenditures, and working capital fluctuations over the next 12 months.

Fitch rates Lyondell notes BB-

Fitch Ratings assigned a BB- rating to Lyondell Chemical Co.'s new $337 million 9.5% notes due 2008 and confirmed its credit facilities and senior secured notes at BB- and senior subordinated notes at B. The outlook is negative.

S&P raises PacifiCare outlook

Standard & Poor's raised its outlook on PacifiCare Health Systems Inc. to stable from negative and assigned a B rating to its $125 million 3% convertible subordinated debentures due 2032.

S&P said the rating reflects PacifiCare's good business position as a regional managed care organization and improved earnings performance.

Offsetting these strengths are PacifiCare's marginal capitalization and high percentage of goodwill in its capital, S&P added.

S&P said it expects that PacifiCare's earnings performance will continue to improve in 2002 and 2003, with pretax operating income of about $260 million for 2002. With the proposed new debt issue, Standard & Poor's expects the company's debt-to-capital ratio to remain close to the current level of less than 40%. Total membership is expected to decrease by about 5% in 2003.

S&P rates CFR Marfa notes B+

Standard & Poor's assigned a B+ rating to CFR Marfa SA's planned €100 million notes due 2007. The outlook is positive.

S&P said the rating reflect Marfa's strategic importance to the Romanian transport sector and its strong relationship with the government.

Proceeds will be used to finance Marfa's capital expenditure program to upgrade its locomotives and wagon fleet and for general corporate purposes.

Marfa is fully owned by the Romanian Ministry of Public Works, Transport, and Housing and is defined by the Republic of Romania as a company of significant interest to the national economy. Partial privatization is not envisaged in the foreseeable future.

The company has a strong business profile as the operator of railway freight transportation in Romania, with a market share of 90%, S&P noted. This is underpinned by a benign political environment, and government support is factored into the rating.

Negatives are Marfa's operation in a volatile, high-inflation, emerging market economy; low profitability in the medium term; the ongoing restructuring process (including the investment of about $335 million in rolling stock between 2002-2007); and high customer concentration, S&P said.

The positive outlook reflects that on the sovereign and S&P's expectation that strong government support will be maintained owing to Marfa's strategic importance to the Romanian transport sector.

Moody's cuts AES Red Oak

Moody's Investors Service downgraded AES Red Oak's senior secured debt to B2 from Ba2. The outlook is negative.

Moody's said the actions reflect the downgrade and negative outlook for Red Oak's tolling counterparty guarantor, The Williams Cos.

Red Oak's rating relies on the credit quality of Williams and its willingness and ability to perform under the tolling agreement, which is not cross-defaulted to its general corporate obligations, Moody's said. In the absence of the tolling agreement, Red Oak could sell to the merchant market or seek a new tolling agreement with another party.

Under current price and capacity conditions in the wholesale power market, Moody's said it does not believe cash flow from either of these options would be sufficient to repay Red Oak's debt on a timely basis.

Moody's cuts AES Ironwood

Moody's Investors Service downgraded AES Ironwood's senior secured debt to B2 from Ba2. The outlook is negative.

Moody's said the actions reflect the downgrade and negative outlook for Red Oak's tolling counterparty guarantor, The Williams Cos.

Red Oak's rating relies on the credit quality of Williams and its willingness and ability to perform under the tolling agreement, which is not cross-defaulted to its general corporate obligations, Moody's said. In the absence of the tolling agreement, Red Oak could sell to the merchant market or seek a new tolling agreement with another party.

Under current price and capacity conditions in the wholesale power market, Moody's said it does not believe cash flow from either of these options would be sufficient to repay Red Oak's debt on a timely basis.

Moody's cuts Cleco Evangeline

Moody's Investors Service downgraded Cleco Evangeline LLC's senior secured debt to B3 from Ba3, concluding a review for downgrade. The outlook is negative.

Moody's said the actions reflect the decline in the credit quality of The Williams Cos., Cleco Evangeline's tolling counterparty guarantor.

Cleco Evangeline's rating is heavily dependent on the credit quality of Williams and its willingness and ability to perform under the guarantee that supports tolling agreement between Williams

Energy Marketing and Trading Co. and Cleco Evangeline under a 20 year arrangement, Moody's said. In the absence of the tolling agreement, Red Oak could sell to the merchant market or seek a new tolling agreement with another party.

Under current price and capacity conditions in the Southeastern wholesale power market, Moody's said it believes cash flow from either of these options would be significantly lower than expected under the tolling arrangement, potentially jeopardizing payment of the debt.

Moody's cuts Cedar Brakes to junk

Moody's Investors Service downgraded Cedar Brakes I and Cedar Brakes II's debt to Ba2 from Baa3. The outlook is negative.

Moody's said the action follows the ratings downgrade of El Paso Corp., which guarantees the performance of its subsidiary, El Paso Merchant Energy, the power supplier to Cedar Brakes I and Cedar Brakes II.

The downgrade reflects the tight coverage ratios for the two transactions, reliance on El Paso to make liquidated damage payments in the event of EPME's failure to deliver power, and El

Paso's role as the administrative servicer for the two transactions, Modoy's said.

Cedar Brakes I and Cedar Brakes II were structured to monetize the fixed price differential between the prices received from Public Service Electric and Gas for electric capacity and energy delivered and fixed prices paid to EPME for electric capacity and energy, allowing the transactions to have very tight coverage ratios. In addition, El Paso assumes all of the management and administrative functions and is required to make payments to the two companies under its power supply agreements.

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