S&P CUTS ENERGYSOLUTIONS’ CREDIT RATING

Capping off a troubled week for EnergySolutions, Standard & Poor’s Rating Services lowered the company’s corporate credit rating June 15 by two notches to “B,” from a previous rating of “BB-.” The move was based, in large part, on “added uncertainty stemming from the unexpected change in management” that occurred last week when EnergySolutions announced it had replaced its CEO and chief financial officer, according to an S&P release distributed through Reuters. “The company last changed CEOs relatively recently, in 2010, and it remains to be seen whether the new management will be able to execute on its growth objectives while maintaining a commitment to improving credit quality,” the release says. The downgrade also reflects “the increased probability that weaker-than-expected operating results will result in a ratio of adjusted funds from operations (FFO) to debt in the 10 percent to 12 percent area instead of the 15 percent to 20 percent that we had previously expected,” the release says.

In its June 15 release, S&P said “The negative outlook reflects our view that business and management uncertainties could cause EnergySolutions’ operating results to under perform our base case expectations for 2012. The company’s operating results have become increasingly variable and difficult to predict, but we expect weaker volumes and operating margins in 2012, with the company not realizing the bulk of profitability until the fourth quarter.” The release adds, “Despite this, we expect the company to generate moderate, though weaker, free cash flow, as working capital swings and capital expenditures tend to be manageable.”