S&P downgrades EnergySolutions' credit rating
EnergySolutions Inc. suffered another blow Tuesday when Standard & Poor's Ratings Services said it was putting the company on its "Creditwatch with negative implications" list.
The rating, expected to make credit more costly and investors harder to attract, comes the day after the company announced new top management and lowered its annual earning's guidance by $20 million.
The nuclear-waste company's stock (ES on NYSE) closed at $1.74 Tuesday, up 7.4 percent from Monday's closing price.
Sterling Jenson, regional managing director at Wells Capital Management, said the S&P 's ratings have been BB- and BB+, putting EnergySolutions' in "speculative grade" or junk bond levels. The rating company added "watch neg" notes on Tuesday.
"It will be harder for them to get the money they need," Jenson said. "They'll pay more (for credit) but it will also restrict the number of borrowers who are willing to lend to them."
That could be a big problem for a company that has to secure letters of credit for around $100 million a year just to guarantee the cleanup funds for its Utah operations. In addition, it affects the company's funding for decommissioning work at the former Zion nuclear power station in Illinois.
On Monday, in a conference call with investors, David Lockwood, the company's new president and CEO, said the ZionSolutions project was not intended as a big moneymaker for the company but as a way to position it for future decommissioning projects.
"We've paid our dues with Zion," said Lockwood, who referred to the project as "a strategic and not a financial decision."
Lockwood also said the company would no longer issue earnings guidance each quarter. Instead, it will give estimates just once a year, with the exception of the report he gave Monday.
Instead of earnings after taxes and other charges of $150 to $160 million, EnergySolutions is expecting earnings of $130 to $140 million, he said. A decrease in government and commercial business were largely responsible for the lower expectations, Lockwood said.
"There are some strong headwinds," he told investors, "and we know there are no quick fixes."
A member of the EnergySolutions board of directors since 2010, Lockwood was named to the company's top job early Monday. His former company, San Francisco-based VA SmallCap Partners, of which he was a founding partner, is listed on the EnergySolutions website as the largest holder of the Utah company's stock, with more than 15 million shares.
Gregory Wood, the company's new chief financial officer, was previously with the Actian Corp, a database software company, and like Lockwood, serves on the board of Steinway Musical Instruments Inc. Wood is EnerygSolutions' fifth CFO in five years.