Sept. 9, 2002 — Liquidity has always been important in credit analysis, and has increasingly become a critical component in evaluating the credit quality of the U.S. energy merchant sector, Standard & Poor’s Ratings Services said in a report published recently.
The rapid erosion of many energy merchants’ credit quality has been spurred by a lack of adequate liquidity in the face of deteriorating industry fundamentals (in particular, low wholesale energy prices, oversupply of capacity, low demand growth, and low equity valuations). These weakening fundamentals have resulted in the need for enhanced liquidity to manage through the downward price cycle.
According to Standard & Poor’s credit analyst Arleen Spangler, “Exacerbating the increased business risk in this sector is the unprecedented level of power plant construction that was financed with short-term construction, or, “mini-perm,” financings.”
Given the increased business risk, how will the sector successfully refinance about $30 billion to $50 billion of construction or mini-perm financings maturing from 2003 to 2006? Standard & Poor’s views the refinancing of mini-perm debt as one of the largest risks facing many of the energy merchants.
The report, entitled “Refinancing Risk in the U.S. Power Sector–The Preponderance of “Mini-Perm” Debt” is available on RatingsDirect, Standard & Poor’s Web-based credit research and analysis system at https://ratingsdirect.com.
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SOURCE Standard & Poor’s