As energy merchants and utilities slowly pick themselves off the mat and get back into the game, CMS Energy Corp. and TXU Corp. last week scored some positive news.

With “moderate” improvement in its liquidity and a lengthened debt repayment plan, Standard & Poor’s Ratings Services (S&P) on Wednesday assigned a “BB” rating to CMS Energy’s new $925 million credit facilities. S&P cautioned, though, that the Michigan-based company continues to face challenges, as it works to sell off more assets, improves its liquidity, restores investor confidence and generates more cash flow as it reduces is $7 billion debt.

The ratings were assigned to CMS Enterprises’ $516 million senior unsecured credit facility due April 30, 2003, which is guaranteed by CMS Energy, a $159 million facility also due April 30, 2004 and a $250 million term loan due Oct. 30, 2004. S&P’s outlook on the company is negative.

“The uncertain value of the capital stock of [subsidiaries] Consumers Energy Co. and CMS Enterprises (which is used as security for the facilities) in a bankruptcy scenario affect any potential benefit afforded by the companies’ assets that support the value of their capital stock,” according to S&P. “The ‘BB’ ratings assigned to the facilities, which equates to CMS Energy’s ‘BB’ corporate credit rating, considers this class of debt to be at the most senior position in CMS Energy’s capital structure.”

Analyst William Ferara said, “the potential value of the assets, when considering various stress scenarios, within Consumers Energy and CMS Enterprises could ultimately result in a residual value of the companies’ capital stock sufficient enough to collateralize the facilities by about two times.”

The bank credit facilities will be secured by a first-priority lien on all of the capital stock of Consumers Energy and CMS Enterprises and its principal subsidiaries. In addition, a guarantee is provided from all on the company’s subsidiaries other than Consumers Energy and Panhandle Eastern Pipeline Co.

“CMS Energy’s liquidity position and that of its primary operating subsidiary, Consumers Energy Co., has moderately improved as they have raised nearly $1.5 billion in various financings (split $925 million at the parent and $550 million at the regulated utility), which, along with expected asset sale proceeds, will address financing requirements through the third quarter of 2004,” said S&P.

“Along with the pending sale of its CMS Panhandle Pipeline unit, the company has effectively improved its liquidity position and lengthened out its debt maturity schedule, which affords the company some time to focus on its longer-term strategic initiatives of deleveraging and strengthening its core operations.”

Meanwhile, Dallas-based TXU said last week that all of its cash borrowings under its North American credit facilities have been repaid. The utility also said that two of its subsidiaries, TXU Energy Co. LLC and Oncor Electric Delivery Co., have established another $450 million revolving credit facility that matures in February 2005.

The new facility will be used for working capital and other general corporate purposes, including commercial paper backup and letters of credit. It replaces a $1 billion 364-day revolving credit facility that was to expire on Tuesday. Up front fees for the new facility are 75 to 100 basis points, based on each bank’s commitment level. The terms of the new facility will be filed with the Securities and Exchange Commission in a Form 8-K.

“We appreciate the support of the banks in establishing this new facility,” said Dan Farell, TXU’s CFO. “Our success in accessing the capital markets over the past several months has allowed us to add permanent financing to our operations, reducing the need for credit facility capacity.”

The TXU Corp. $500 million facility that matures on May 1, 2005 has been replaced by two facilities totaling $100 million at TXU Corp. and a $400 million facility at TXU US Holdings, all of which mature on May 1, 2005. An existing $1.4 billion five-year facility that matures on Feb. 25, 2005 remains at TXU US Holdings.

With successful capital market transactions over the past few months, combined with existing cash and cash flows, TXU and its subsidiaries have repaid all cash borrowings previously drawn under the North America bank facilities, according to the company. Approximately $400 million of letters of credit remain outstanding under the facilities. Oncor has also cancelled its $150 million undrawn senior secured credit facility that was scheduled to expire on Dec. 19, 2003.

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