Fitch puts five energy firms on credit watch negative

By the OGJ Online Staff

HOUSTON, Dec. 20 -- In a new blow to the beleaguered energy industry, credit rating agency Fitch IBCA Thursday put five energy -related companies, including AES Corp., UtiliCorp United Inc., Teco Energy Inc., Mirant Corp., and Xcel Energy Inc., on credit watch negative.

Fitch said it took action because of recent negative events and adverse market sentiment affecting the energy sector. Market capitalization of the entire sector has been reduced, the agency said, and access to funding sources in the bank and capital markets for near and intermediate term liquidity needs is less assured than in the past.

A spokesman for Minneapolis-based Xcel Energy said the action came as a "surprise," and the company "takes it credit rating very seriously. We will work with them to address their concerns," said Ed Legge. "It's important to note this is an industry wide issue. These are very unusual times in the independent power producer sector."

Fitch said it doesn't see any of the companies in circumstances comparable to Enron Corp., which collapsed after a loss of market confidence. But it said, "The change that is under way in asset valuations and access to capital will place a burden on these entities. Financial management practices, including leverage and liquidity policies, will need to be reassessed given the expected operating environment."

Fitch said lenders may demand additional credit enhancements, such as collateral, that could place downward pressure on senior unsecured debt ratings. To the extent the companies resort to asset sales to free up resources, asset valuations and the liquidity of asset dispositions will be reduced by a shortage of buyers who can readily finance an acquisition, Fitch said.

Fitch said each of the five companies derives a significant portion of its earnings and cash flow from the merchant energy business and/or has an aggressive capital expenditure program or pending acquisition. Some face large debt maturities over the next 6 months. Fitch said the companies also have debt leverage that is relatively high for their respective rating categories.

With respect to AES, Fitch said the action reflects the company's tight liquidity situation in the next 6 months as a result of current unfavorable capital market conditions for the energy sector and concerns about concentration of dividends from Latin American subsidiaries and weak earnings prospects in the UK.

Negative market sentiment
Given the current negative market sentiment towards the energy sector and AES's depressed stock price, Fitch said the company may encounter difficulty in accessing funding. Since the Latin American subsidiaries have contributed nearly 35% of its total parent cash flow in 2001, the agency noted, any further deterioration in the region's already depressed economy could delay or reduce expected dividends from the region. Fitch said it will review AES' plans and resolve the ratings watch in the next several weeks.

The credit rating agency said it put Mirant on the list because of the Atlanta-based company's consolidated leverage, a weaker profit environment over the near term for merchant generation and wholesale marketing and trading, and some concern about the concentration of dividend sources from Asian emerging markets Fitch said it is not concerned about Mirant's near-term liquidity.

The ratings watch for TECO Energy reflects the company's exposure to NEPCO, an indirect subsidiary of Enron, the engineering and procurement contractor on several of TECO's merchant generation projects, Fitch said. Enron's Chapter 11 filing allowed the banks to stop funding the NEPCO-related projects, Fitch said.

While TECO is negotiating with the banks, Fitch said the "source of funding is still uncertain." Fitch said it had already been looking for TECO to raise equity to strengthen its balance sheet. However, the ratings agency noted TECO doesn't have any significant trading and marketing exposure.

Fitch attributed the rating action for UtiliCorp United to higher business risks and an increased capital investment program resulting from termination of the Kansas City company's plan to spin off Aquila, its wholesale energy trading and marketing subsidiary, and its offer to acquire the 20% public ownership.

The ratings watch for Xcel Energy reflects the potential heavy capital needs of NRG Energy Inc., Xcel's nonregulated subsidiary and the possibility that Xcel may have to provide funding or credit support on behalf of its subsidiary, Fitch said.

Related Articles

Halliburton, Baker Hughes agree to extend DOJ review of planned merger

07/13/2015 Halliburton Co. and Baker Hughes Inc. reached a timing agreement with the US Department of Justice’s Antitrust Division to extend DOJ’s review of H...

Russia’s Rosneft inks deal for stake in Indian refinery

07/13/2015 OAO Rosneft has entered a preliminary agreement to purchase as much as 49% interest in Essar Energy PLC subsidiary Essar Oil Ltd., including its 20...

MPLX, MarkWest to merge in $15.8 billion deal

07/13/2015 MPLX LP, a Findlay, Ohio-based master limited partnership (MLP) formed by Marathon Petroleum Corp. in 2012, and Denver-based MarkWest Energy Partne...

EPP completes acquisition of EFS Midstream

07/13/2015 Enterprise Products Partners LP (EPP) said it has completed the purchase of EFS Midstream LLC from Pioneer Natural Resources Co. and Reliance Holdi...

Western Australia, Browse JV agree on gas supply plan

07/13/2015 The Western Australian government and the Woodside Petroleum Ltd.-led Browse joint venture have finally come to an agreement over the supply of gas...

PHMSA proposes pipeline accident notification regulations

07/13/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations.

Topside modules installed on Clair Ridge platform west of Shetland

07/13/2015 BP PLC reported the installation of quarters and utilities (QU) topside modules on the new platform on Clair field, 75 km west of the Shetland Isla...

Moody's: Macondo settlement seen 'positive' for BP

07/13/2015 BP Exploration & Production Inc.'s recent agreement to settle federal and state claims related to the 2010 Macondo blowout and spill improves t...

OGJ Newsletter


International news for oil and gas professionals

White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected