After US markets closed yesterday, S&P lowered its rating on Italy’s sovereign debt from ‘A+’ to ‘A’ with a negative outlook. In its report, S&P specified weakening economic growth prospects, its “fragile” government, and policy differences between the Berlusconi government and the parliament.

In what may be any rating agency’s first criticism at a government’s fiscal austerity measures, the ratings agency noted: “More subdued external demand, government austerity measures, and upward pressure on funding costs in both the public and private sectors will, in our opinion, likely result in weaker growth for the Italian economy compared with our May 2011 base-case expectations, when we revised the outlook to negative. We believe the reduced pace of Italy’s economic activity to date will make the government’s revised fiscal targets difficult to achieve.”  In other words, spending cuts by the Italian government are likely to stall the country’s economic growth. Such a situation will make it nearly impossible for the country to meet its new fiscal targets.

Iron Mountain Inc. (NYSE: IRM) received a ‘B+’ rating from S&P on its proposed $300 million senior subordinated notes due in 2019. The agency also placed a ‘BB-’ rating and a negative outlook on Iron Mountain’s corporate credit.

Discover Financial Services (NYSE: DFS) received a ‘AAA’ rating from S&P on Discover Card Execution Note Services $800 million DiscoverSeries notes. These notes are asset-backed securities ultimately collateralized by “receivables generated from designated Discover Card accounts.”

European Aeronautic Defence and Space Co. N.V. (OTC: EADSY), maker of the Airbus aircraft, received an outlook upgrade from ‘stable’ to ‘positive’ from S&P. The agency reaffirmed its ‘A-/A-2′ long- and short-term corporate credit ratings on the company.

Helix Energy Solutions Group, Inc. (NYSE: HLX), an oil field services firm, received a corporate credit rating boost from ‘B’ to ‘B+ from S&P. The rating on the company’s senior secured debt was also raised to ‘BB-’ and unsecured debt was raised from ‘CCC+’ to ‘B-’.

Elizabeth Arden, Inc. (NASDAQ: RDEN) received an upgrade from ‘stable’ to ‘positive’ from S&P. The agency also affirmed its ‘B+’ corporate credit rating.

Yum! Brands Inc. (NYSE: YUM) received a rating of ‘BBB-’ from S&P on a proposed offering of worth 350 million Chinese renminbi (about $55 million) in senior unsecured debt. The notes will rank equally with existing and future unsecured debt.

Monsanto Co. (NYSE:MON) received an ‘A2′ long-term debt and Prime-1 rating from Moody’s on its commercial paper.

Bill Barrett Corp. (NYSE: BBG) received a ‘B1′ rating from Moody’s on a proposed offering of $300 million in secured notes due 2019. Proceeds will be used to repay borrowing on the company’s revolving credit borrowings which funded acquisitions in 2011 and to support capital spending above operating cash flow. The company’s outlook retained a ‘stable’ rating.

Dynegy Inc. (NYSE: DYN) was placed on Rating Watch Negative by Fitch Ratings following the announcement of a $1.25 billion exchange offer. The offer includes debt with interest rates from 7.125% to 8.750%, all of which will be exchanged for new 10% senior secured notes.

AT&T (NYSE: T) was reaffirmed on Rating Watch Negative by Fitch Ratings. The company’s Issuer Default Ratings and senior unsecured debt rating have been rated ‘A’.

Many debt and credit ratings upgrades are noise, but there is one thing that usually rings true.  As companies see their credit ratings rise, that lowers their borrowing costs, and that in effect raises their earnings.  Credit ratings matter more now that America is no longer “AAA.”

Paul Ausick

Noble Energy Inc. (NYSE: NBL) has received a permit to restart drilling at its Santiago prospect. The drilling rig on the project belongs to Ensco plc (NYSE: ESV) and the well is located in 6,500 feet of water. The well had been drilled to more than 13,000 feet below the sea floor before the moratorium was instituted, and is targeted for total drilling depth of 19,000 feet. Noble Energy is a partner in the group of E&P companies that formed a consortium led by Helix Energy Solutions Group, Inc. (NYSE: HLX) to develop improved subsea control and containment capabilities.

The restart signals good news for other drillers, including Noble Corp. (NYSE: NE; not related in any way to Noble Energy), Diamond Offshore Drilling Inc. (NYSE: DO), and Transocean Ltd. (NYSE: RIG), owner of the Deepwater Horizon rig that exploded last April. At the time the moratorium was first initiated, 16 wells operated by 13 different companies were shut-in. These 16 wells will be the first projects to get going again, but the outlook for new wells is more problematic.

BOEMRE has made the requirements stricter for getting a new deepwater Gulf permit. A new project is likely to need a site-specific environmental assessment, which is also required of a continuing project, but may also be required to get a supplemental environmental impact statement, at a much costlier and much lengthier procedure. In its annual survey of US E&P companies, Grant Thornton LLP reports that 68% of senior gas & oil company executives believe an increase in drilling costs by 20% or more due to government regulation would make new E&P projects too expensive to pursue.

As pump prices for gasoline rise in response to political upheaval in Libya (and potentially elsewhere in the oil-rich nations of North Africa and the Middle East), US drivers, who are also voters, will raise a clamor for lower prices and politicians will react. After all, the next election is less than 18 months away.

The New York Times cites the president of Chevron Corp.’s (NYSE: CVX) North American E&P division as calling the Noble Energy permit “a step in the right direction,” but also adding, “It is time for the government to clear the backlog of deepwater drilling permit applications so industry can create the energy, jobs and economic growth our nation needs so badly.”

Notice that Chevron’s executive didn’t say that it’s safe to go back into the deepwater, or that the industry knows what to do to prevent another disastrous blowout. BOEMRE’s chief did note that Noble Energy had met new safety and environmental rules put into place since the Macondo blowout, and that the Helix subsea system Noble Energy will use is capable of meeting government spill-response requirements.

Now that the first permit is out, the pressure on BOEMRE to issue more will only intensify. Industry associations, politicians, and industry players will all be pushing for quicker approval of restarts and faster review and approval of new drilling projects. Everyone who matters assumes that the new regulations will make deepwater drilling safer. The rest of us are left to hope everyone who matters is right.

Paul Ausick

Note: The Flame Index scans thousands of news sites 24 hours per day and ranks companies getting the most negative press right now. The Flame Index Media Analysis Algorithm crunches the data for an up-to-the-minute ranking of the hardest-hit companies.

The Flame Index started as a research tool in 2008 at the NY Innovation Design Lab (nyidlab). It was used as a general metric to evaluate companies and their risk in the media. Publicly traded Fortune 500 companies are used as a measure to calculate an overall market of negative news and the companies are ranked within that market.

Douglas A. McIntyre

Data and ranking provided by the Flame Index.

Now, Judge Feldman has ruled that the federal government has 30 days to act on five applications for drilling permits from Ensco plc (NYSE: ESV). On the judge’s side, a consortium called the Marine Well Containment Company that was formed to create a response plan for a major spill in the Gulf announced that it has an interim plan ready to go.  The five oil companies, Chevron Corp. (NYSE: CVX), Exxon Mobil Corp. (NYSE: XOM), ConocoPhillips Corp. (NYSE: COP), Royal Dutch Shell plc (NYSE: RDS-A), and BP, announced the plan yesterday. Helix Energy Solutions Group, Inc. (NYSE: HLX) is developing a similar system.

Most politicians and industry associations are eager to get Gulf exploration started again. The New York Times cites the president of the National Ocean Industries Association, “…the time to begin issuing permits is now. The court has spoken — the containment technology is there.”

That’s not exactly what’s happened. Judge Feldman’s ruling is based on his determination that the Department of Interior needs to act on permit applications in a reasonable amount of time. He did not say anything about the efficacy of new containment technology.

The Marine Well Containment Company said that BOEMRE has witnessed a functional test of its interim solution, which works in water up to 8,000 feet deep at well pressures up to 15,000 pounds/square inch, and is capable of capturing 60,000 barrels of fluid/day. The company is also working on an expanded system that would work in depths up to 10,000 feet and have the capacity to capture 100,000 barrels/day of liquid. Here’s an illustration of the interim system.

As we’ve noted elsewhere, the latest report on the Gulf disaster amounts to nothing more than a me-too document that adds nothing to understanding what happened at the Deepwater Horizon or where the blame lies for that disaster.

Judge Feldman clearly didn’t care last June whether we knew what caused the blowout, and he doesn’t care now. The judge just wants the drilling to start up again. And so does the National Commission that issued the latest report on the Deepwater Horizon disaster. What most of us want is a steady supply of oil as cheaply as we can get it. Gulf of Mexico drilling will resume very soon now.

Paul Ausick

Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) had good news but is trading lower as VIVUS Inc. (NASDAQ: VVUS) looks better.

Cal Dive International Inc. (NYSE: DVR) is trading 3% lower on a seondary offering of shares that is being sold by Helix Energy Solutions Group, Inc. (NYSE: HLX).

E*TRADE Financial Corporation (NASDAQ: ETFC) is trading up sharply at the expense of Charles Schwab (NASDAQ: SCHW) after a Goldman Sachs analyst call.

Mueller Water Products (NYSE: MWA) is actually trading up after its secondary offering size was increased on strong demand from a large underwriting group.

Palm Inc. (NASDAQ: PALM) is trading down marginally, but is seems like its direction is not clear yet.  We have more details on levels to watch for support and resistance.

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Jon C. Ogg
September 18, 2009