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Grim outlook for energy merchants, says S&P

High liquidity requirements are putting off potential joint venture partners from investing in energy companies’s trading operations, S&P added. Last month, Missouri-based Aquila closed its energy trading division, following a two-month search for a partner. But Houston-based Dynegy is still attempting to find a partner to buy into its energy trading business.

“The biggest cloud facing the industry over the next 18 to 24 months is an estimated $30 billion of debt that needs to be refinanced in the bank and capital markets,” said Suzanne Smith, S&P analyst in New York. “Much of this debt was incurred to finance the acquisition and construction of power plants in the US.”

Furthermore, a lack of parent company credit support for Dynegy from its largest shareholder, ChevronTexaco, shows that companies can no longer rely on parents for liquidity, S&P added. As part of its new energy merchants rating methodology, S&P intends to observe more closely the way cash is moved between parents and subsidiaries.

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