As usual, we have a week’s worth of ratings actions on the debt of LBO-backed companies from Standard & Poor’s Ratings Services and Moody’s Investors Service. This week was relatively slow, with the big news coming from the largest LBO of all time, KKR and TPG’s buyout of TXU (now known as Energy Future Holdings).
The Texas-based energy giant proposed a distressed debt exchange which will reduce its obscene debt load from $44 billion to $42 billion. Naturally the move warranted a downgrade from both Moody’s and S&P. Moody’s expressed concerns over “looming maturities” on around $23 billion of debt in 2014, which it said will need to be addressed before 2013. Meanwhile, carbon and mercury legislation threatens the company’s “coal-fired margins,” Moody’s wrote. Read more on the mega-buyout’s financial situation below.
Company: Hercules Offshore Inc.
Sponsor: Lime Rock Partners
Action: S&P lowered the issue-level rating on the company’s secured term loan and revolving credit facility to ‘B’, same as the corporate credit rating, from ‘B+’.
Highlight: The ratings on Hercules reflect rapidly deteriorating market conditions that have resulted in very low utilization and soft day rates and its exposure to the volatile and weak Gulf of Mexico jackup rig market,” said Standard & Poor’s credit analyst Kenneth Cox.
Company: Energy Future Holdings Corp.
Sponsor: KKR and TPG
Action: S&P lowered its corporate credit ratings on company and its subsidiaries to ‘CC’ from ‘B-‘. Moody’s downgraded the probability of default rating (PDR) for Energy Future Holdings Corp. to Ca from Caa1.
Highlight: From S&P: “EFH is offering to exchange various unsecured debt issues at the EFH and TCEH level for $4 billion in new secured debt maturing in 2019. We view this exchange offer as distressed and thus equivalent to a default based on our rating criteria: lenders will not obtain anywhere near the original amount of the debt exchanged, the maturity of the new debt is longer, and the exchange is not an opportunistic event for EFH but an effort to improve its very limited financial flexibility.”
Highlight: From Moody’s: “Moody’s views EFH’s capitalization as relatively complex, which includes numerous, often inter-related, incurrence tests and other covenants. In addition, EFH’s financial profile is considered weak, where the ratio of cash flow from operations to debt was roughly 2.5% for the latest twelve months ended June 2009 and for the year ended 2008. Moody’s estimates that even under fairly optimistic assumptions, cash flow to debt is expected to be less than 5% for the next several years which we believe is more in line with a Caa1 CFR.”