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09 Jul 2003
MOODY'S DOWNGRADES CERTAIN RATINGS OF PG&E NATIONAL ENERGY GROUP (SR. IMP. TO Caa3) AND ITS WHOLLY-OWNED SUBSIDIARIES
Approximately $3.4 Billion of Debt and Bank Credit Facilities Affected
New York, July 09, 2003 -- Moody's Investors Service downgraded PG&E National Energy Group,
Inc.'s (NEG) senior implied rating to Caa3 from Caa2 and
confirmed its senior unsecured ratings at Ca. NEG's wholly-owned
subsidiary PG&E Gas Transmission, Northwest Corporation's
(GTN) senior unsecured rating is downgraded to B2 from B1. Moody's
also downgraded the debt of NEG subsidiary USGen New England, Inc.
(USGenNE) to Caa3 from Caa1. The outlook is negative for all three
These rating actions follow NEG's announcement yesterday that it
and certain subsidiaries had voluntarily filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. USGenNE filed
its own Chapter 11 petition and is expected to be restructured in a separate
proceeding. GTN is not in Chapter 11 bankruptcy. The bankruptcy
resulted from PG&E Corp.'s inability to negotiate a comprehensive
debt restructuring with NEG's creditors. These negotiations had
been on-going since last fall when NEG failed to make certain principal
and interest payments on its revolving credit facility and senior unsecured
bonds. The company is currently in default of $3 billion
of obligations. It will not seek debtor-in-possession
financing but instead plans to rely on available cash ($513 million
of unrestricted cash on a consolidated basis as of March 31, 2003)
to meet its base operating needs while in bankruptcy.
The downgrades reflect the uncertainties resulting from the bankruptcy
proceedings as well as the poor conditions in the merchant wholesale power
market that could hamper the company's restructuring efforts.
These rating actions incorporate Moody's expectations about the
prospects for recovery among the various classes of creditors among the
NEG group of companies.
The downgrade and negative outlook for GTN's rating incorporate
GTN's affiliation with a bankrupt entity and the contingent liabilities
from its guarantees of the trading and tolling obligations of PG&E
Energy Trading Holdings Corporation (ET), NEG's energy trading
subsidiary which is in bankruptcy. However, GTN's ratings
also recognize certain protections provided its creditors by its ringfenced
structure and covenants that limit the level of dividends that can be
paid to NEG and require unanimous board approval, including that
of an independent member, to put GTN into bankruptcy. GTN
enjoys a sound stand-alone financial profile, and Moody's
believes that it has sufficient debt and borrowing capacity to finance
a reasonable range of liquidity calls that could materialize out of these
Nevertheless, GTN's negative outlook indicates the uncertainty
of the amounts of those guarantees, should they materialize for
GTN, and acknowledges that the effectiveness of GTN's ringfenced
structure has yet to be tested over the course of NEG's bankruptcy
proceedings. Moody's could take negative rating actions should
the guarantees materialize in amounts that strain GTN's liquidity
resources or if its ringfenced structure is challenged. GTN's
rating and outlook could improve if the guarantees are resolved with a
neutral credit impact for GTN and when NEG emerges from bankruptcy.
As of March 31, the face value of GTN's guarantees supporting ET's
trading activities was $278 million, with an overall net
exposure of $27 million on the transactions supported by the guarantees.
In addition, there is a $150 million guarantee outstanding
on a tolling agreement of ET. It is expected that the underlying
contracts will terminate as a result of the ET bankruptcy, and ET
will be subject to any termination payments. The amount of these
payments have yet to be determined and are subject to a likely lengthy
arbitration process that will be administered by the bankruptcy court.
The Caa3 ratings for USGenNE reflect the possible recovery value based
upon the underlying assets. The assets of USGenNE comprise a portfolio
of generating plants in New England. A portion of the portfolio
benefits from power sales to creditworthy utilities. However,
continued oversupply in the wholesale power market may undermine uncontracted
revenues as well as the value of the company's assets. The bank
facility represents a senior unsecured claim. The pass through
certificates may benefit from the secured lease obligation notes related
to lease transactions for the Bear Swamp facility in Massachusetts.
However, the underlying leases could be rejected as executory contracts
in bankruptcy, and damages for the rejection of the leases may be
limited under law.
In summary, Moody's has taken the following rating actions,
all with a negative outlook:
PG&E National Energy Group, Inc. -- Senior unsecured
debt, issuer rating, and unsecured bank credit facility confirmed
at Ca, senior implied rating downgraded to Caa3 from Caa2;
PG&E Gas Transmission, Northwest Corporation -- Senior
unsecured debt downgraded to B2 from B1;
USGen New England, Inc. -- Senior secured pass-thru
certificates and senior unsecured bank credit facility downgraded to Caa3
Headquartered in Bethesda, MD, PG&E National Energy Group,
Inc. is currently a wholly-owned subsidiary of PG&E
Corporation. USGenNE and GTN are wholly-owned by NEG.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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