OM Group Falls On Pending Breach; Credit Crunch Hits CenterPoint

The announcement of operating losses from OM Group's cobalt metal products and uncertainty about covenant relief resulted in a downgrade by Moody's Investors Service. Ratings on both the company's $325 million revolver and its $600 million term loan "C" were lowered from Ba3 to B2 and are under review for a further possible downgrade.

Cobalt sales deterioration poses a substantial uncertainty with regard to OM Group's near-term financial flexibility, which is dependent on necessary amendments to the company's revolver, Moody's stated. The Cleveland chemical company currently is holding discussions with lenders, but continued weak economic conditions and a reduced demand for super alloys in the aerospace industry exacerbate the negative prospects.

Moody's plans to consider the impact of OM Group's announced restructuring plan--as well as the implications of expected losses, its $108 million inventory write-down and anticipated restructuring charges--on its bank facility. Proceeds from a planned liquidation of its cobalt inventory in the fourth quarter also will factor into Moody's review. Calls to OM Group were not returned.

* Meanwhile, Moody's pushed CenterPoint Energy off the investment-grade cliff by downgrading its senior unsecured rating from Baa2 to Ba1. The downgrade reflects the Houston company's limited financial flexibility resulting from delays in the spin-off of its 80% stake in Reliant Resources, which constrained CenterPoint's access to the capital markets and triggered the company's implementation of $4.7 billion in credit facilities with onerous terms, Moody's explained. The new facilities expire this Friday unless the company completes a $420 million third-party refinancing, which is presently underway (LMW, 11/4).

Moody's also lowered from Baa2 to Ba1 the ratings of CenterPoint Energy Resources, the company's regulated gas distribution arm, due to limited availability on its two bank facilities. Capacity under its $350 million revolver is fully utilized, and its $150 million trade receivables program is under negotiation as a result of ratings triggers that restrict usage with below investment-grade ratings.

In a written statement, CenterPoint stated that the downgrades "will not affect the company's commitment to its ultimate goal of reducing its level of debt and increasing its financial flexibility, nor will it affect its commitment to customer service."