The Paducah Sun
The Paducah Sun
Paducah, Kentucky
Friday, May 10, 2002

USEC credit ratings drop another notch
Standard & Poor's, a bond rating service, downgraded the rating and may do so again soon.

By Joe Walker

Already at junk bond status, the USEC Inc. credit ratings have dropped a notch and could do so again if a deal to lower prices of uranium bought from Russia continues to languish, according to Standard & Poor's, the bond rating service.

The S&P has lowered its ratings, including its corporate credit rating of USEC, from BB+ to BB and called the outlook negative. The ratings, which have been below investment grade since early 2000, mean USEC must pay higher interest for newly borrowed money.

S&P credit analyst Scott Sprinzen cited "protracted delays" in getting governmental approval of a new contract to lower the cost of enriched uranium that USEC buys from Russia. He said the ratings could drop again if the agreement is not finalized, "or if the apparent contamination of a substantial portion of the company's natural uranium inventories leads to a material writedown."

USEC says about 9,500 metric tons of natural uranium stored in cylinders at the Paducah Gaseous Diffusion Plant could have traces of technetium-99, a contaminant more radioactive than uranium. The material was transferred from the Department of Energy to the company as part of its privatization, but USEC has been unable to get DOE to replace the uranium with untainted stock. Contamination issues cloud the potential use of the material for enrichment or sale.

In February, USEC reached a new agreement to lower Russian uranium prices through 2013, but the deal has still not been approved by the U.S. and Russian governments. USEC has repeatedly said lower Russian uranium costs help preserve the Paducah plant, where production expenses are higher.

"We still remain confident that the government will approve the Russian agreement and this uncertainty will be removed," USEC spokeswoman Elizabeth Stuckle said.

She said the ratings drop has no immediate financial impact on USEC because it has no short-term debt and its long-term bonds have fixed interest. "It could affect the cost of future borrowing," Stuckle said.

Stuckle pointed out that the S&P gives below-investment ratings to 43 percent of the more than 1,700 publicly traded firms it rates. She said 142 are rated BB, "so apparently that's not uncommon."

When the S&P dropped the rating the first time, energy workers' union officials and some lawmakers said they feared USEC orchestrated the move to avoid legal requirements to keep operating both Paducah and its sister plant in Ohio. Although USEC downplayed those claims, the Ohio plant closed 16 months later.

USEC reported in April that despite more revenue, its net income dropped by nearly $62 million in the past nine months, but the firm expected gradual improvements by getting the Russian deal approved. Despite continued rumors and union concerns of several hundred more layoffs at the 1,500-employee Paducah plant, Stuckle said there are no plans for job cuts.

Issued last week, the S&P's latest summary of USEC mentions the earnings drop, but also notes the company is the world's largest producer of enriched uranium. It cites the firm's cost cutting, cash flow and moderate debt amid a "difficult market environment" marked by oversupply and lower prices.