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Close to the "Credit Cliff"

A Standard & Poor's survey of more than 1,000 U.S. and European investment-grade debt issuers revealed that less than 3%, or 23 companies, show serious vulnerability to rating triggers or other contingent calls on liquidity, which could turn a moderate decline in credit quality into a liquidity crisis.

"Our survey and analysis shows that about half of the 1,000 companies responding have exposure to some sort of contingent liability," said Edward Emmer, executive managing director of Standard & Poor's Corporate and Government Ratings unit, in a press release. "However, only a small number of companies face the proximity to a so-called 'credit cliff', which means that credit deterioration could be compounded by provisions such as rating triggers or financial covenants that could put pressure on the company's liquidity or its business to a material extent."

Emmer said that none of the 23 companies identified face ratings downgrades, and none is being placed on CreditWatch solely as a result of this review. "It should be stressed that the companies designated as having a 'credit cliff' profile may not face an imminent threat of either a credit event or liquidity problem," Emmer said. "Any current or imminent concerns surrounding liquidity have already been factored into each company's ratings."

"We are pleased by the way companies responded to our requests for information, and hope that they will make this information public on an ongoing basis," he also said.

Solomon Samson, chief quality officer for the Industrials Ratings group, explained that Standard & Poor's designed this survey and review to provide greater insight and value to investors.

"Our analysts reviewed each company's submissions and financial statements and exercised their judgment on the impact of any rating triggers," he said in a press release. He noted that the analysis of a company's relative exposure to a credit cliff took into account a comprehensive view of contingencies, including tight financial covenants, and material adverse change ("MAC") clauses, and not merely rating triggers. Other variables, including the likelihood of the contingency occurring, the materiality of consequences, and other factors were also included in each company's review.

"Standard & Poor's has consistently considered triggers, MAC clauses, and other covenants in assessing a company's access to bank capital and other sources of debt funding," Samson said. "We will continue to request that companies provide this information to us on a regular basis, and incorporate it into our analysis and published research."

A list of the 23 companies identified by Standard & Poor's as having a credit cliff profile -- where the proximity to rating triggers or other contingent calls on liquidity, and the materiality of the consequences of tripping the provisions, could present a serious concern:

U.S. companies



Aquila Inc.

BBB/Watch Neg/A-2

Black Hills Corp.


Dominion Resources Inc.


Dynegy Inc.

BBB/Watch Neg/A-3

Georgia-Pacific Corp.


Halliburton Co.

A-/Watch Neg/A-2

Mirant Corp.


Petroleum Geo-Services ASA

BBB-/Watch Neg/--

PG&E National Energy Group Inc.


Philadelphia Gas Works

BBB/Watch Neg/--

Raytheon Co.


Reliant Resources Inc.

BBB/Watch Neg/A-2

Semco Energy Inc.


Tyco International Ltd.

BBB/Watch Dev/A-3

Williams Companies Inc. (The)

BBB+/Watch Neg/A-2

European companies



Basell N.V.


Eutelsat S.A.


Polish Oil and Gas Co.


Repsol-YPF S.A.


Rexel S.A.


Telekomunikacja Polska S.A.

BBB/Watch Neg/--

Vivendi Environnement S.A.


Vivendi Universal S.A.


From Standard & Poor's CreditWire

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