Dynegy Ratings Cut to Junk by S&P on Profit Decline (Update3)

Fuente: Bloomberg

New York, July 22 (Bloomberg) -- Dynegy Inc., owner of 21 power plants and a natural gas pipeline from Texas to Michigan, had its credit ratings cut to junk by Standard & Poor's because of lower profits from selling electricity to other utilities.

S&P cut the long-term rating for Dynegy and its subsidiaries two levels to BB from BBB-, the lowest investment grade, S&P said in a release. Senior unsecured bonds of Dynegy Holdings Inc., Dynegy's debt-issuing arm, was cut to B+ from BBB-.

Dynegy reported a first-quarter loss of $140 million, compared with net income of $139 million a year earlier, as revenue fell 37 percent. Dynegy has access to $900 million in cash, down from $1.4 billion in April, S&P said, citing Dynegy. Dynegy's ratings may see further reductions, S&P said.

``We're looking stability in cash flow, enough that they'll have the cash to meet working capital and debt maturities'' without having to seek new funds, S&P analyst John Kennedy said.

S&P's action follows a similar ratings cut by Moody's Investors Service last month.

Dynegy is constrained by limited access to debt and equity capital markets, S&P said. Last week, Dynegy sold $325 million of notes through its Illinois Power Co. unit to yield about 10 5/8 percent, rates more typical of junk bonds, to entice investors.

Lower credit ratings typically mean higher costs for a company's future borrowing because investors demand more yield to hold lower-rated securities. A cut to junk can boost yields the most because many bond managers are restricted from holding debt rated below investment grade.

BB rated bonds yield 10 percent on average, compared with 7.1 percent for BBB rated debt, according to Merrill Lynch & Co.

Enron

Houston-based Dynegy, which operates plants in Illinois, Texas, New York and California, was poised to become the world's largest energy trader in November after proposing to buy Enron Corp.'s trading business. Dynegy later canceled the transaction.

The company was investigated earlier this year by federal authorities because of round-trip energy trades, which inflated the company's trading volumes. Dynegy Chief Executive Chuck Watson resigned in May.

Dynegy has about $4.8 billion of bonds outstanding, according to Bloomberg data. The company has eliminated clauses that could force debt repayment if a rating is cut in $301 million of its debt, S&P said.

Dynegy spokesman Steve Stengel didn't return calls. Dynegy shares, which fell 59 cents to $3.38 today, are down 87 percent this year.