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 Corp.’s new $925 million credit facilities.

However, S&P noted 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.”

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