Banking & Finance

Top Debt & Credit Rating Agency Actions (IRM, DFS, EADSY, HLX, RDEN, YUM, MON, BBG, DYN, T)

Debt and credit rating agencies made a number of changes yesterday, led by the downgrade of Italian sovereign debt by Standard & Poor’s. The agencies also issued changes to debt ratings for the following companies: Iron Mountain Inc. (NYSE: IRM), Discover Financial Services (NYSE: DFS), European Aeronautic Defence and Space Co. N.V. (OTC: EADSY), Helix Energy Solutions Group, Inc. (NYSE: HLX), Elizabeth Arden, Inc. (NASDAQ: RDEN), Yum! Brands Inc. (NYSE: YUM), Monsanto Co. (NYSE:MON), Bill Barrett Corp. (NYSE: BBG), Dynegy Inc. (NYSE: DYN), and AT&T (NYSE: T).

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

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