Moody's Investors Service has downgraded Choctaw Generation Limited Partnerships's $470 million senior secured bank loan rating from Baa2 to Baa3, due to continuing delays in the construction of the Red Hills Generation Facility power plant. A recent fire during construction has further delayed the project, and under a purchase power agreement between Choctaw and the Tennessee Valley Authority beginning June 1, Choctaw may be obliged to cover the cost of providing replacement power to the TVA should the plant not have commenced operations by new year. Due to alleged changes in labor conditions that have been presented by the contractor, the rating is under review for possible further downgrade.
* Moody's has also downgraded the ratings of Motor Coach Industries International, Inc.'s $455 million senior secured credit facilities, consisting of a $143.5 million revolving credit, due 2005, and a $303.1 million term loan, due 2006, to B2, from Ba3. The two-notch downgrade is prompted by MCII's substantial deterioration in operating performance in late 2000 and the first quarter of 2001, expected continued weakness in the near term, and uncertainty regarding timing and extent of recovery. Revenues for the year 2000 declined by $219 million, or 24%, to $692 million while operating income decreased from positive $77 million in 1999 to a loss of $10 million in 2000. Results to date in 2001 are similarly poor. The company reported a $2 million operating loss, versus operating income of $6 million in the like 2000 period.
The downturn in performance was mainly due to sharp decline in unit deliveries to the independent tour and charter market and reduction in expenditures by their national coach fleet customers Greyhound Lines Inc. and Coach U.S.A. The independent operators faced weaker demand due to the economic slowdown and substantial increases in operating costs, particularly fuel, and accordingly, extended their coach replacement cycle. In addition, credit availability has become more difficult as several traditional financial sources for coach financing pulled back and tightened credit standards. However, to support the rating, order backlog in the public sector should help carry the company through the current down-cycle. Total units delivered to the public sector increased by 25% in 2000 and year 2001 deliveries are expected to increase substantially on the strength of a multi-year New Jersey transit contract.
* St. Louis, Miss.-based Peabody Energy Corporation's credit facilities have been placed under review for possible upgrade because of improved demand and pricing for coal, coupled with Peabody's plans to use the proceeds of an initial public offering to repay long-term debt. The $480 million senior secured revolver and $125 million senior secured term loan "B" are rated Ba2. Spot coal prices have risen sharply since last fall, which is expected to increase Peabody's average realization and operating cash flow over the next couple of years as the company resets a large portion of its coal contracts at higher prices. Moody's plans to keep Peabody's ratings under review until the IPO and deleveraging are completed and confirmation of new sales commitments are being locked in at significantly higher prices than expiring contracts. This is expected within two months.