Moody's Investors Service has downgraded the senior debt rating of PG&E National Energy Group (NEG) from Baa2 to Ba2, citing the company's near-term liquidity issues, declining operating performance and negative prospects for wholesale energy merchant prices.
While the company has $1.4 billion of liquidity, $750 million of borrowing capacity under its $1.24 billion revolving credit will mature on Aug. 22. The company currently has $430 million outstanding on the expiring piece and is in the process of renewing the facility. The outlook is negative and reflects the risk that NEG will not be able to renew the line.
Brian Hertzog, a company spokesman, admitted that the competitive energy industry has recently come under pressure, which presents challenges when tapping the capital markets. Still, he said, "We feel pretty confident that we are going to be able to renew the agreement." Due to its fall from investment grade status, the company could also face a potential collateral call of roughly $300 million from agreements with trading counterparties. Hertzog said the company is currently in negotiations with those parties.
The rating agency's concerns with NEG's operating performance are centered around weaker than expected operating cash flow. The bleak outlook for merchant energy prices compounds this problem as the company is relying more on this market for future cash flows.
*Williams Scotsman's corporate credit rating has been upgraded by Standard & Poor's to B+ from B after the company improved its financial flexibility through a new $670 million credit and a $150 million senior note offering.
The ratings are supported by Williams Scotsman's strong number two position in the relatively stable mobile office leasing market with a market share of approximately 25%. The rating is hurt though by the company's aggressive financial profile, including $1.2 billion of debt outstanding. S&P forecasts that this profile will remain steady over the next couple of years. "We are very comfortable with our financial profile," said Gerard Keefe, cfo and treasurer of Williams Scotsman, noting the company's stability. Over the long-term, the company anticipates deleveraging but will keep its eyes open for growth opportunities, he said.
*Fitch Ratings has revised the outlook for Allied Waste Industries to negative due to the effect of a weak economy on margins and cash flow generation. Fitch noted that the pressure on the company's financial profile is derived from Allied Waste's inability to increase prices in certain business segments. This change of outlook affects $4.2 billion in bank debt.
Competitive pricing in the industrial and construction roll-off segments, with no apparent near-term improvement, has led to negative year-over-year pricing for the last couple of quarters, Fitch said. Consequently, Allied Waste has not been able to raise prices high enough to offset higher costs. Over the year, Fitch suggests that the company's credit ratios will deteriorate and, if EBITDA continues to decline, the company will become uncomfortably close to its interest coverage ratio covenant. Calls to Thomas Ryan, Allied Waste cfo, were not returned by press time.