S&P: $90 billion in refinancing needed by US energy merchants by 2006

Access to capital will be the key to survival for US energy merchants with medium-term debt to refinance within the next 4 years, reported Standard & Poor's Rating Service.

By OGJ editors

HOUSTON, Nov. 11 -- Access to capital will be the key to survival for US energy merchants with medium-term debt to refinance within the next 4 years, reported Standard & Poor's Rating Service. Initially bank-financed for the most part, those debts surpass $90 billion total, the analysts reported, and refinancing is becoming increasingly more difficult.

Weakening industry fundamentals, poor short-term liquidity, and lack of capital market access have contributed to the difficulty in refinancing medium-term debt for many energy merchants and for the banks that will be asked to refinance that debt, the analysts reported.

"It should be noted that certain companies have better access to capital than others," said Arleen Spangler, a credit analyst with Standard & Poor's. "Generally, however, bad news relating to accounting irregularities, trading losses, regulatory uncertainty, and a general lack of investor confidence in the overall business model have plagued the sector, making this one of the worst times in recent history to refinance debt."

Credit analyst Tanya Azarchs added, "Banks are also significantly exposed to this troubled sector since many of the construction projects and major acquisitions were financed through widely syndicated bank loans. In addition, the banks have exposure to this sector through general corporate credit facilities or other commitments."

Standard & Poor's based its conclusions on data compiled about 23 power companies—15 having revenues from both regulated and unregulated activities and 8 totally unregulated and thus in a competitive market. The report compares total dollar amount of refinancing needs over the next 4 years, as well as refinancing needs as a percent of total capitalization and as a percent of total debt outstanding.

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