CMS Energy Corp. and Dynegy Corp. both received encouraging news from two of the credit ratings agencies that have clobbered their debt ratings in the past year. Moody’s Investors Service offered positive news to CMS; meanwhile, Standard & Poor’s Ratings Services (S&P) removed Dynegy from its CreditWatch listing.

For CMS, Moody’s assigned “B2” ratings to its new secured bank credit facilities. The ratings, said Moody’s, reflect not only the ongoing nature of the stressed financial profile of the company, but the “significant progress” made to execute its asset sales strategy.

Moody’s analysts said the financial flexibility of its transactions has “resulted in reduced liquidity pressure,” further augmented when it suspended its common stock dividend. “Further, we anticipate that the clarification of auditing issues surrounding prior years’ annual financial statements will allow access to the public debt capital markets and that [subsidiary] Consumers Energy will continue to be somewhat insulated from the financial stress at CMS Energy.”

Moody’s also gave CMS a stable rating outlook, which “reflects our expectation that the financial plan devised by CMS will ease the pressures associated with its debt burden over the intermediate term and that its strategic plan, when fully implemented, will result in an organization dominated by a regulated utility with significant gas and electric assets.”

The ratings agency added that its assessment of the Michigan-based utility “could be negatively impacted by the financial implications of decisions in judicial or regulatory proceedings resulting from investigations and inquiries into the company’s energy trading practices and shareholder lawsuits” as well as if it falls behind in its asset sales and balance sheet improvement.

Dynegy’s boost followed its successful completion of two revolving bank loans and a third bank loan for its communications operating lease. Because of the new loans, S&P removed the company from its CreditWatch listing and affirmed its “B” corporate credit ratings, assigning a “B+” rating for Dynegy Holdings Inc.’s new $1.66 billion senior secured credit facility. The Houston-based company has $5.454 billion of debt outstanding, and S&P said Dynegy’s outlook remained negative.

“The successful completion of the new bank facility relieves some concerns regarding Dynegy’s liquidity position because it renews a significant amount of bank line capacity,” said John Kennedy, an S&P analyst. “However, the negative outlook reflects our uncertainty regarding Dynegy’s ability to generate sustainable cash flow, given the current environment in electric generation, as well as the price volatility in gathering and processing of natural gas liquids.”

Kennedy said that “given the firm’s current weak financial profile, adverse economic conditions could result in thinner margins on generation and gathering and processing of natural gas liquids, which, in turn, could stress Dynegy’s ability to produce reliable cash flow and meet debt service obligations.”

The analyst said the rating stability and/or upward ratings momentum is “principally predicated on the predictability and sustainability of cash flows to meet debt service obligations commensurate with the level of risk inherent in the company’s business strategy.”

The secured bank loan rating, said S&P, is supported by an analysis “that the quality and dollar value of the collateral package underpinning the $1.66 billion senior secured credit facility indicates a strong likelihood of substantial recovery of principal in the event of a default or bankruptcy.”

Despite S&P’s reservations, the news was good enough to boost Dynegy’s stock Thursday nearly 9% to $3.09. It was the first time Dynegy shares have been above $3.00 since last July. It was a generally good day for all of the down-trodden energy companies. Shares of Williams Cos. rose nearly 17% to $5.90 Thursday on the strength of a Lehman Bros. upgrade from “underweight” to “overweight,” based on increased liquidity. On Monday, Williams said it would sell Texas Gas Transmission for more than $1 billion. On Tuesday, it announced the appointment of a new CFO. El Paso also gained over 6% to $7.17 Thursday after a series of announcements during the week, including word that a consortium of 50-plus bankers agreed to a one-year extension of the company’s $3 billion revolving credit facility that was due to expire in May. Other merchant and marketer stocks also were up by lesser percentages, as were producers in a generally up market.

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