US power and energy industry focusing on liquidity, S&P says

NEW YORK, Aug. 29, 2002 — While Standard & Poor’s Ratings Services has always assessed liquidity when analyzing a corporation’s creditworthiness, the issue has become increasingly more important to differentiate the stronger players from the weaker ones in the U.S. power and energy industry, according to a recent commentary by Standard & Poor’s Ratings Services.

“The survival of Dynegy Inc., NRG Energy Inc., and The Williams Companies Inc., for example, hinges on their ability to maintain adequate levels of liquidity over the next several months,” wrote Standard & Poor’s credit analyst Suzanne G. Smith. “However, it is not only struggling companies that command attention. Standard & Poor’s current focus is on liquidity for all companies in the power and energy industry.”

“Also, attention is not only on the remaining months of 2002, but on the next two years as well,” Ms. Smith added.

The biggest cloud facing the industry over the next 18 to 24 months is an estimated $30 billion of mini-perm debt that needs to be refinanced in the bank and capital markets, Ms. Smith wrote. Much of this debt was incurred to finance the acquisition and construction of power plants in the U.S.

Overall, the power and energy industry faces an unprecedented confluence of operational and financial challenges, making ample liquidity a much more important component of the credit analysis, the commentary notes. Among these challenges are lower funds from operations, greater reliance upon asset sales to maintain liquidity, and a more difficult environment for raising capital.

However, the commentary also notes that some companies have made good progress eliminating ratings triggers from bank loans and commercial contracts, and some companies have already increased the level of liquidity to back up their contingencies.

The full commentary: “For U.S. Energy Merchants, the Focus is on Liquidity,” is available on RatingsDirect, Standard & Poor’s Web-based credit analysis system. The commentary is also available on Standard & Poor’s Web site,

Follow the link for “Forum” and then under “Ratings Commentary,” click “Corporate Finance” and then “Utility and Infrastructure Finance.”

SOURCE Standard & Poor’s

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