Standard & Poor’s and Fitch Ratings last week both held to a negative credit watch for CMS Energy Corp. and its subsidiaries, Consumers Energy Co. and CMS Panhandle Pipeline Cos., after the company was able to extend its $450 million revolving credit facility another month. The Dearborn, MI-based company has about $8 billion in debt.

S&P said it “perceives no immediate effect on CMS Energy’s credit quality from the extension…to July 12, 2002 from June 15, 2002. At issue will be what type of longer-term financing CMS Energy puts in place to repay about $300 million of the borrowings under the facility,” noted credit analyst William Ferara.

Ferara said that the company’s credit quality has become “increasingly uncertain since the disclosure of its ’round-trip’ trades that were conducted by CMS Marketing Services & Trading.” The trades “resulted in the resignation of Bill McCormick, long-time chairman and CEO of CMS Energy, and have further eroded the firm’s standing in the capital markets.” In addition, S&P said “uncertainty has arisen” because of:

“CMS Energy may be forced to secure assets in one of its operating subsidiaries to obtain long-term financing. The company’s willingness to use its operating subsidiaries to weather its current liquidity position may immediately affect credit ratings. Specifically, CMS Energy’s potential actions regarding this long-term financing such that funds from its operating subsidiaries could be upstreamed to the parent indicates that in a stress scenario funds are fungible throughout the CMS Energy enterprise. This means that their risk of default would be the same.”

S&P said it would “resolve the CreditWatch listing after examining the full effect of the round-trip trades and related issues that could negatively and materially affect CMS’ credit quality.

Fitch Ratings also said last week it would maintain a “Rating Watch Negative” on the company and its subsidiaries, noting that the SEC investigation, “combined with CMS’s engagement of Ernst & Young to replace Andersen, “will likely complicate the refinancing of the expiring bank facility and $100 million of maturities at Consumers in 2002.”

“While Consumers and PEPL are financially sound, the companies’ financial condition and credit ratings may be adversely affected by the financial stress of their parent,” noted Fitch. “Consequently, Fitch will continue to monitor the liquidity of CMS and the impact of CMS’s problems on the credit of its subsidiaries.”

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