Moody’s Cuts Ratings on Two PG&E; Units

PG&E; Corp.’s power-generating and trading unit’s credit ratings were cut to “junk” Monday by Moody’s Investors Service, forcing the company to renegotiate $1 billion in loans obtained in June.

Moody’s downgrade of PG&E; National Energy Group to Ba2 follows a downgrade by Standard & Poor’s Corp., which cut the unit to below investment grade last week. Banks require National Energy to have an investment-quality rating from one or both companies.

PG&E;, technically in default under its bank covenants, said it obtained a waiver on the loans through Aug. 16. The owner of California’s top utility is in talks with lenders, including General Electric Co.’s GE Capital and Lehman Bros. Holdings Inc., to amend the agreement, which runs through September 2006.

“We are now working with these lenders to discuss long-term modifications to this lending agreement, as our team has done successfully in the past,” PG&E; said.

Moody’s cut its rating on about $3.8 billion of debt three levels from Baa2 because of weaker-than-expected cash flow and low wholesale power prices. Additional cuts are possible, the credit-rating company said.

Moody’s also lowered ratings for PG&E; Gas Transmission Northwest and USGen New England, both PG&E; units.

Shares of San Francisco-based PG&E;, which have lost more than half their value this year, fell 51 cents, or 5.8%, to $8.30 on the New York Stock Exchange.

National Energy’s 10.38% coupon notes maturing in 2011 plunged 11 cents to 37 cents on the dollar, according to Trace, the bond price-reporting service of the National Assn. of Securities Dealers.

That lifted the yield on the debt to 32%, up from 26% before the ratings cut.

“The rating action reflects declining operating performance,” Moody’s said.

Lenders have tightened credit for energy traders after the collapse of Enron Corp. and federal probes of accounting and sham transactions.

PG&E;’s Pacific Gas & Electric utility, under bankruptcy protection, contributed 81% of earnings from operations in 2001. National Energy added the rest.