Fitch Ratings has downgraded AES' senior unsecured debt to BB from BB+ due to a limited liquidity schedule in the face of high leverage. The company will need to reconcile the near-term maturities on $300 million in bonds, an $850 million revolving credit facility, and a $425 million bank loan in the next 12 to 18 months, said Mona Yee, Fitch analyst. Fitch supports the company's plans to sell some of its assets in 2002, noting such a move would improve its situation. "Unless they can sell the assets, they will be working with a very tight rope," said Yee.
The company's cash flow troubles are challenged by its exposure to falling market prices for US and UK merchant power plants. In addition, a devaluation of the currency is expected to significantly impact AES' Venezuelan subsidiary. The subsidiary had been projected to contribute over 10% of total cash flow in 2002, according to Fitch. Although the company has a portfolio of more than 100 power projects, its diversification only mitigates AES's exposure to the unpredictable markets in its plant countries, said Yee. Outlook is still considered negative. Calls to the company were not returned by press time.
*Standard & Poor's has downgraded Pinnacle Entertainment from a B+ to B following the release of lower than expected operating results. The company's gaming facilities in Indiana, Mississippi, and Louisiana have struggled to perform against current competitive market conditions, according to Michael Scerbo, S&P analyst. The market for gaming facilities grew but not by enough to cover an excess supply, he said. The company's leverage still remains high, even though Pinnacle told Wall Street that it expects a $75 million EBITDA for 2002. "In the near-term they will be highly leveraged based on their financial profile," said Scerbo. He noted that the company's biggest advantage is $100 million in cash on its balance sheet, and also the $110 million available under its revolver.
Pinnacle is taking steps to deal with its leverage and expects better operating performance particularly at its Belterra facility in Southern Indiana and its Casino Magic Bossier City property, said Bruce Hinckley, senior v.p. and cfo of Pinnacle. The company recently obtained its final gaming license for a new facility in Indiana, but it is reevaluating how it will develop this facility. "Our intent is to reduce the leverage that we already have," said Hinckley.
*RCN 's $250 million revolver, $250 term loan "A" and $500 million term loan "B" were downgraded to Caa1 from B2 by Moody's Investors Service. Moody's ratings for RCN were predicated on the expectation that the company would be able to finance its capital structure. The company committed to building an infrastructure to support large market growth, but the demand has not been as great as RCN's business plan predicted. Moody's speculates that the company will violate covenants on minimum network connections and minimum revenue requirements. Although the company has an enormous pre-funded cash balance, it needs a positive EBITDA to continue to service its debt. A spokeswoman denounced the downgrade.