Moody's Investors Service has downgraded Enron's senior unsecured ratings to Ca from B2 and confirmed the Not Prime ratings of its commercial paper after the disgraced fallen giant, along with some subsidiaries, filed for voluntary Chapter 11. The downgrade is based on the belief that recovery rates will be low on unsecured claims. Citigroup was the lead arranger for a $3 billion unsecured credit line to Enron, with J.P. Morgan serving as co- arranger.
The two firms also arranged a secured $1 billion credit line to try to keep Enron afloat as the proposed Dynegy acquisition was being negotiated. Approximately $12.4 billion of long-term debt is affected, with a mass of banks and institutions having exposure to a company regarded only a few weeks ago as one of the world's largest energy companies with an apparently solid investment-grade rating. Calls to Enron spokespeople were not returned. Moody's has also lowered Northern Natural Gas' ratings to B3, from B2, and left them under review for further possible downgrade. Northwest is not included in the bankruptcy filing,
* Standard & Poor's has lowered its corporate credit and senior secured bank loan ratings for XO Communications from CCC+ to CC, based on the company's announcement that it will probably not make scheduled interest and dividend payments on its unsecured notes. XO provides local and long distance data services and is based in McLean Va. Forstmann Little and Telefonos de Mexico are investing $800 million in the company for equity, contingent on XO completing a restructuring of its balance sheet, which involves a debt for equity swap. The restructuring is expected to require lending institutions and noteholders to play ball, leaving total debt at $1 billion, rather than the current $5.1 billion. This will constitute a default on the unsecured debt, but the rationale is that noteholders have no other alternative than to accept less for the securities, according to S&P. Todd Wolfenbarger, spokesman for XO Communications, did not return calls by press time.
* S&P has also lowered the senior secured bank loan ratings for Vertis Holdings, a Baltimore-based advertising and marketing firm from BB- to B+ due to expectations that market conditions will weaken Vertis' financial profile and that the recovery in 2002 will only likely be moderate. The ratings reflect Vertis' significant debt levels and competitive market conditions. A recapitalization in 1999 significantly increased debt levels and the economic slowdown has led to a decrease in print production volumes, exacerbating recent results.
The company does have a leading position in the advertising insert market and there is a diversified customer base and a substantial recurring revenue and cash-flow stream, according to S&P. Additionally, in an effort to improve operating performance, Vertis is set to consolidate and simplify its corporate structure, realign the sales force and reduce the company's cost structure.