FirstEnergy Corp.'s bank debt traded in the secondary loan market for the first time last week on speculation of potential repercussions stemming from the blackout of Aug. 14. An $8 million piece of the company's bank debt traded out of an original lender around the 963/4 context, according to market players. The credit protection for FirstEnergy was also said to have been extremely volatile at the beginning of last week. "That tells me that people are jumping in [to the credit protection]," one banker said. Dot Matthews, a CreditSights senior analyst who follows the name, said the credit is a bit of a moving target. "Here is a situation that we are looking at with a potential liability that we can't quantify," she said.
FirstEnergy has about $1.349 billion of bank debt outstanding under $1.5 billion of credit facilities. The company is still an investment-grade credit, but Standard & Poor's has placed its BBB corporate credit rating on watch with negative implications. "I don't think that they are going to go from investment grade to a BB [credit],"said one loan trader, explaining that he believes the company would fall more toward default if any fall were to occur. Still, he noted that no one knows what is going to happen at this point.
The giant blackout is not the only problem plaguing FirstEnergy. Corrosion in the company's Davis-Besse Nuclear Power Station caused the plant to be shut down. A company spokeswoman explained that as a result, the company has had to buy power on the wholesale market. She said FirstEnergy has spent over $400 million on this problem, but noted that it is not expected to be a factor in the long-term. The company has been working to repair the plant and is looking to restart the plant this fall. In addition, FirstEnergy was blamed for a power outage over the July 4 weekend along the New Jersey shore.
Going forward, FirstEnergy has about $575 million in cash available and continues to implement its debt reduction plans. The company has already redeemed $415 million of $670 million of mandatory redeemable debt this year. The spokeswoman also noted that the issues that led to the blackout of Aug. 14 are far more complex than the events that occurred on FirstEnergy's lines that day. With the enormous investigation of the blackout continuing, it is premature to make any conclusions, she added. The spokeswoman declined to comment on the bank debt trade and calls to Richard Marsh, senior v.p. and cfo of FirstEnergy, were referred to the spokeswoman.