ROME Institute - October 22:Energy Risk – North American Power & Gas Issuers Unaffected by Recent Liquidity Concerns

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October 22:Energy Risk – North American Power & Gas Issuers Unaffected by Recent Liquidity Concerns
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by Glen Grabelsky on Oct 22, 2007 - 12:00 AM read 396 times
Source: http://www.garp.com/resources/newsfeed.asp?Category=6&MyF...

Liquidity in the North American power and gas sector is very solid as the recent tightening of the global credit markets has had almost no effect on issuers, according to a Fitch Ratings report. The relatively favorable access of the power and gas sector to bank and capital markets was exemplified in August 2007 when the short- and long-term debt markets virtually shut down. After this period of market anxiety, during which most planned issuances were postponed, investors slowly returned to the sector and found a generally receptive environment. While spreads widened as the investment community reduced its risk appetite overall and risk was repriced, the power and gas sector emerged as the first non-government sector to return to capital markets. 'Long-term liquidity relies heavily upon access to external financing for most North American power and gas issuers,' said Glen Grabelsky, Managing Director, Fitch Ratings. 'Utilities have demonstrated market access during both systemic crisis and company-specific events.' Working capital needs in this sector can swing widely due to seasonal consumption patterns, seasonal storage of gas or coal inventories, and collateral requirements for hedging volatile commodity positions. However, companies are able to manage these working capital needs under their committed bank facilities or by adopting other business practices to replace cash collateral. Working capital funding is not a significant liquidity burden in the sector. Fitch initiated a global liquidity review in May 2007 for rated issuers across corporate finance as a number of liquidity-based sensitivities in the market continue to influence both issuer and investor decisions. The goal is to gain a better perspective on the magnitude of maturities that would be coming due over the next 24 months per each North American corporate sector, and what organic and contingent sources were available to meet these obligations during this period of the credit cycle. Source: RiskCenter.com

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