On Friday, Moody’s Investors Service downgraded the senior unsecured debt ratings of Enron to Baa3 from Baa2 and the company’s rating for commercial paper to Not Prime from Prime-2.
Alas, Enron’s long-term debt ratings remain under review for further downgrade. “Moody’s actions reflect the company’s reduced financial flexibility as a result of a substantial loss of investor confidence,” reported the debt rating firm.
“Enron drew down its bank credit facilities to shore up near term liquidity, but faces significant debt maturities over the near term, as well as the potential for increased margin requirements from counterparties of its wholesale trading operation,” added a Moody’s release. “In addition, uncertainty surrounding the firm’s contingent obligations creates increased risk for debtholders.”
Moody’s announced that Enron’s well-established wholesale trading franchise and its regulated pipeline businesses have solid operating attributes and generate good cash flow. “However, the rating agency concludes that the company may not be able to retain investment grade characteristics,” it added.
“Moody’s review will focus on Enron’s ability to further improve its liquidity and capital position. The rating agency would view a substantial near-term injection of equity capital as a stabilizing event.”
Other Financing News
Aetna announced a third quarter 2001 operating loss, excluding other items, of $49 million compared with third-quarter 2000 operating earnings of $42 million and a second-quarter 2001 operating loss of $96 million. Third-quarter 2001 operating results include a $13 million after-tax benefit from the sale of Aetna’s New Jersey Medicaid membership and exclude charges of $9 million after-tax resulting from the September 11 attacks.
The ratings outlook for Aetna has been negative since June 2001. In August 2001, Moody’s placed the company on review for possible downgrade following the second-quarter earnings announcement.
“The review is focused on the effectiveness of Aetna’s turnaround strategy particularly with respect to more disciplined pricing and underwriting, and improved management information tools,” said Moody’s in a statement. “Moody’s is encouraged with Aetna’s progress, which is reflected in the improvements reported in third-quarter operating earnings compared with the second quarter. Assuming further improvements in Aetna’s profits, the review may lead to Moody’s confirmation of Aetna’s current ratings rather than a downgrade.”