Moody’s downgrades PG&E National Energy Group

New York, October 21, 2002 — Moody’s Investors Service has lowered the ratings of PG&E National Energy Group, Inc. (NEG, Senior Unsecured to B3 from B1) and certain of its subsidiaries and kept the ratings under review for possible downgrade.

Ratings downgraded and under review for further downgrade include:

PG&E National Energy Group, Inc. – Senior Unsecured Debt, Issuer Rating, and Syndicated Bank Credit Facility to B3 from B1;

PG&E National Energy Group, Inc – Senior Implied Rating to B2 from Ba3;

PG&E Gas Transmission Northwest (GTN) – Senior Unsecured Debt to Ba1 from Baa3;

USGen New England, Inc. – Pass-Thru Certificates and Syndicated Bank Credit Facility to B2 from Ba3;

Attala Generating Company, LLC – Senior Secured Debt to B2 from Ba3;

The rating action and review for possible downgrade reflects NEG’s weak operating performance, low operating cash flow relative to its debt, and tight liquidity. NEG’s revolving credit facility expires on October 21, 2002 and the company is working with its banks to seek an interim extension.

Additionally, NEG disclosed in a SEC filing that it had notified the lenders under its construction revolver that it does not intend to make further equity contributions. NEG is in negotiations with these lenders over provisions to fund completion of these projects.

NEG’s parent, PG&E Corporation has disclosed that it continues to explore options for the NEG including sales of assets and businesses, debt restructuring, and reorganization of existing operations. While specific details about the status and terms of such activity remain unknown, Moody’s views the outcome of this activity as playing an integral role in NEG’s ability to extend the expiring bank facility and to reach a satisfactory resolution with the construction revolver banks.

The rating action and review for possible downgrade of GTN and USGenNE debt reflects NEG’s reliance on these more predictable sources of cash flow to help support NEG’s funding requirements. GTN’s rating considers that there is a degree of ring fencing protection which limits the level of dividends payable by GTN to its parent.

The rating action and review for possible downgrade of Attala’s debt reflects the project’s high dependence on operational and financial support from NEG and its subsidiaries, which purchase Attala’s power output.

Headquartered in Bethesda, MD, PG&E National Energy Group, Inc. is a wholly-owned subsidiary of PG&E Corporation.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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