Debt Crunch Expected
For U.S. Power Sector
Fitch Sees Rating Declines
As $25 Billion Comes Due
By REBECCA SMITH
Staff Reporter of THE WALL STREET JOURNAL
A debt crisis will dominate the U.S. power sector in 2003 and could
last well in to 2004, according to an analysis by Fitch Ratings
expected to be released Tuesday.
With more than $25 billion of debt coming due next year and an
inhospitable lending environment, the credit-rating agency said nearly
40% of the utility-holding companies and half of the merchant
generators it rates face possible ratings downgrades.
Companies that specialize in the sale of wholesale energy are coping
by stretching out debt maturities, retaining the assets they can manage,
shedding the rest and hoping they will stay afloat long enough for
energy demand and prices to strengthen.
As if to underscore the dismal projection, PG&E Corp., of San
Francisco, said lenders are giving its development unit, National
Energy Group Inc., enough money to finish two giant power projects
-- but the banks then will take possession of the plants by June.
National Energy Group defaulted on $421 million of obligations on
Nov. 14, setting in motion cross-defaults, including $605 million for
plants in California and Connecticut. Total defaults by NEG total $2.7
billion.
"We continue to be in active, productive discussion with our lenders to
reach a global restructuring," PG&E Chairman Robert Glynn said.
Nevertheless, the transfer of plants with more than 2,000 megawatts
of total capacity to lenders, led by Citigroup Inc.'s Citibank, illustrates
the weakness of the position these companies find themselves in.
So, too, does the refinancing deal cut by another big merchant-plant
developer, AES Corp. of Arlington, Va. It announced completion last
week of a complex deal to refinance $2.1 billion in bank and bond
debt. But AES was compelled to pledge the parent company's interest
in its U.S. assets and 65% of its direct interest in foreign assets to
obtain the borrowings.
Scott Taylor, an analyst at ratings agency Standard & Poor's, said
"nothing solves all your problems in this market, but this does buy
AES at least two years of breathing room" and eliminates any
immediate threat of insolvency.
TXU Corp., the big Houston-based utility holding company that was
dumped to "junk" rating last week by Moody's Investors Service,
stressed Friday that it has "ample liquidity" of $2 billion that will last
until at least 2004.
Fitch analyst Hugh Welton said that many firms embarked on overly
ambitious power-plant construction programs. As they complete
plants, several of the most important markets -- Texas, California and
the Northeast -- two years from now will have more
electric-generating capacity than they need. Many operators hope that
older, dirtier plants will be retired in coming years, diminishing the
excess capacity. But, for now, prices remain soft at a time when
companies are trying to move to permanent financings from
construction debt.
Fitch said the situation is especially difficult for firms with large sums
of debt coming due in the next two years and specifically cited Reliant
Resources Inc., of Houston; Dynegy Inc. also in Houston; Aquila
Corp., of Kansas City, Mo.; Mirant Corp. in Atlanta; and Calpine
Corp., of San Jose, Calif.
Calpine Chairman Peter Cartwright said that despite the pressures, his
firm had managed to nearly double production capacity this year,
bringing on line 24 plants totaling 9,000 megawatts of capacity. It
raised more than $3 billion of capital in 2002 but still has $2 billion of
debt that comes due next year, about 15% of Calpine's total
indebtedness of $13.5 billion.
At one point, Calpine sought a partner for its energy-trading business,
"but most people we talked about joint venturing with are no longer in
[that] business," Mr. Cartwright said. He said he believes his company
is positioned to be a survivor, particularly as it completes its
power-plant buildout and gets sales proceeds to service the debt.
Fitch analysts said one odd development is helping beleaguered
companies. That is the bankruptcy filing of Enron Corp. Fitch analyst
Ellen Lapson said nearly everyone in the electric and gas industry is a
creditor to Enron and they "have to be horrified by the level of
professional fees associated with that bankruptcy."
The perception, she adds, is that money that might have gone to creditors "will evaporate in fees." As a result, she says,
lenders and other creditors are doing almost everything possible to keep troubled power firms out of bankruptcy court --
even including taking the keys to new generating facilities as soon as they are completed. |
