CMS Energy Corp. COO David Joos reassured analysts Wednesday that despite a downgrade by Moody’s Investor Services and the unexpected withdrawal of Arthur Andersen LLP to complete urgently needed financials for its bank refinancing due next Monday, the company has enough liquidity through at least mid-July, and even longer if other assets such as the Panhandle Eastern Pipe Line Co. subsidiary have to be tapped for loans.

Speaking at the Deutsche Bank Electric Power Conference in New York City, Joos said CMS has requested a four-week extension on its $750 million credit facility due on June 17. However, in a “worst-case scenario,” if the company’s facility is denied and immediate payment is requested, “we have the opportunity to raise new money through Panhandle,” said Joos, who noted there is between $300 million and $400 million of borrowing availability in the pipeline subsidiary’s credit line.

“But it’s not in the best interests of the banks for that to happen,” Joos said. “This issue can be dealt with in a rational manner.” He said CMS had drawn $300 million of the $450 million facility due Monday, as well as the full $300 million of a credit facility due in July. There is $150 million left of the $750 million credit facility, and, “there are no immediate needs for cash through mid-July,” when a $75 million interest payment will be due.

The three-year term $450 million credit facility terminating Monday is the biggest credit issue CMS faces at the moment, said Joos, and it became more serious after Andersen announced that it could not perform a restatement of financials that was to accompany the credit facility extension. (CMS had already terminated Andersen, but the auditor had earlier agreed to complete the restatements to include round-trip transactions for 2000-01.)

“Andersen’s announcement came at an inopportune time…having said that, we have been working on this [issue] with our six core banks…to address the bridge period until we have our audited financials in place. There is an expectation there that we would look to put an interim extension in place for something like a four-week period…given that the news [from Andersen] came out on Monday,” he said. “We expect during the four-week period that what we need to get done can be accomplished, and we are optimistic it can get done.” New auditor Ernst & Young will complete the work.

CFO Al Wright said a “likely outcome, is that the bank commitment will stay in place, and we won’t need draws for 35-40 days.”

Commenting on the Moody’s downgrade, and the concurrent statement by Standard & Poor’s that it would not downgrade at this time, Joos said, “Moody’s and S&P both made statements. Moody’s has made some extraordinary moves, and quite frankly, we were disappointed. We don’t think it was justified. S&P took a much more rational view of things, and maintained the ratings of a month or so ago when all of the news was first reported. Our fundamentals are solid,” he said, and S&P’s announcement was more logical.

CMS’s Marketing, Services and Trading (MST) operation, which has led to the company’s unraveling in the past few weeks, will continue to operate, said Joos, but on a much reduced scale. “In the long term, it makes sense to do an origination business backed up by asset optimization. Obviously, the trading market is under fire right now… We are having to cut back dramatically in our activities, but we won’t cut back in areas like contract origination. If there are credit problems, perhaps then, but we don’t know yet.”

Other factors have contributed to CMS’s liquidity crunch, he noted, including a “significantly higher” capital investment program started last year in its “biggest piece of business,” the electric and natural gas utilities. Also, the company’s international investments, particularly in politically troubled Argentina, are “not supporting our investment…and we’re trying to get out of those.”

However, as CMS continues its back-to-basics approach with its strategic investments in North America, Joos said the company will also avoid more risky investments. “To do that, we may have to sacrifice growth,” said Joos, but in the near term, “an awful lot of discretionary income will be used to pay down our debt.”

Wright, who shared the podium with Joos, assured the audience that the company still had “access to the credit markets in regard to debt. Before this controversy presented itself, in the last 10 years, we have been able to raise money through our ratings. Assuming we move through this period of turbulence, and re-emerge at the other end, I don’t see any long-term detriment to the long-term earnings power of the company, other than the tightening of the operation.”

The CMS board of directors’ special committee of outside directors investigating the round-trip trading activity is also moving forward, said Joos, and an independent counsel will be named next week. The committee’s report could be ready within 60-90 days.

“Senior management has done a thorough review of this, and all of the information has been shared,” said Joos. “In a nutshell, MST clearly used the round-trip trading to support higher volumes. We will fully cooperate with the [Securities and Exchange Commission] on this, and we want to ensure there are adequate controls in place.” Already, he said, CMS has revised its energy trading policy’s bonus pool, which will be determined by earnings, and not revenue or volumes.

“The policy also was changed to explicitly forbid trades with no economic impact and we will require approvals for high volumes,” he said. Basically, the committee will be looking at the “effects of round-trip trading…;who knew what when… what type of communications broke down; whether appropriate controls can be put in place.”

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