Downgrade

Banc of America Securities (BOA) downgraded Dynegy Inc. to “sell” from “neutral” on Wednesday because of questions about the company’s future cash-flow generation. More than 10 million Dynegy shares exchanged hands, and the stock fell more than 5% to close at $4.98.

Citing the uncertainty looming over the high-profile complaint case against El Paso Corp. at FERC, Moody’s Investors Service downgraded the senior unsecured debt ratings of the Houston-based energy corporation and its subsidiaries to junk, or Ba2 from Baa3 Tuesday, and also assigned a senior implied rating to El Paso of Ba1. It said the rating outlook for embattled El Paso was negative.

El Paso Corp.’s credit ratings teeter on the edge of junk status after a downgrade by Standard & Poor’s Ratings Services on Tuesday. S&P said El Paso remains on CreditWatch with negative implications and could fall deep into junk levels if FERC sides with an administrative law judge in concluding that the company manipulated the California natural gas market.

Standard & Poor’s Ratings Services said Tuesday that for now its downgrade of PG&E Corp’s merchant energy unit, the National Energy Group (NEG), will not impact the rating of Selkirk Cogen Funding Corp., of which NEG is a part owner, even if the PG&E unit is forced to seek bankruptcy. No announcements were scheduled on NEG’s efforts to improve its balance sheet.

San Diego-based Sempra Energy indicated Monday it was not surprised by a downgrade from Moody’s Investors Service for it and one of its two major utilities, San Diego Gas and Electric Co. Sempra pointed out that Moody’s maintained the “stable” outlook and an investment-grade level rating, and the company attributed the action to the general energy sector’s troubles, rather than weaknesses in its businesses or strategies.

Responding to the announcement last week that its credit ratings were being put under review for possible downgrade by Moody’s Investors Service, Williams CEO Steve Malcolm said that while he is “very disappointed” with the announcement, “we are still fully committed to maintaining our current level of investment-grade credit rating.” Williams shares fell from more than $19/share on Monday to as low as $16.15 on Friday.

Hoisted somewhat on the petard of its own success and a shrinking merchant power market nationally, San Diego, CA-based Sempra Energy and its two principal utility subsidiaries had their credit ratings downgraded Wednesday by Standard & Poor’s, reflecting Sempra’s increased earnings from the nonutility businesses, particularly energy trading.

The near-term risk of more natural gas price erosion led analysts at ABN-AMRO and Lehman Brothers to downgrade their 2002 forecasts for several U.S. exploration and production company stocks this week. ABN-AMRO lowered its view of 2002 natural gas prices to $3.75/Mcf from $4.20/Mcf, but noted the new level “still represents a lofty and highly profitable commodity price for E&P companies.”

High power costs in the Pacific Northwest prompted Moody’sInvestors Service yesterday to change its outlook on securitiesissued by PacifiCorp (senior secured debt at A2) to negative fromstable.