TEXT-S&P puts EnergySolutions ratings on watch negative
June 12 - Overview -- EnergySolutions Inc. recently announced its board of directors has replaced the company's CEO and CFO, and management has lowered the company's annual earnings guidance by $20 million to $130 million to $140 million. -- We are placing the ratings on EnergySolutions and its subsidiaries on CreditWatch with negative implications. -- We expect to resolve the CreditWatch placement following a review of our updated expectations and the implications of the management changes. Rating Action On June 12, 2012, Standard & Poor's Ratings Services placed its ratings, including its 'BB-' corporate credit rating, on Salt Lake City-based EnergySolutions Inc. and its subsidiaries on CreditWatch with negative implications. Rationale The CreditWatch placement reflects our view that EnergySolutions' financial profile is unlikely to improve to levels consist with our previous expectations for the ratings. We now believe the funds from operations to debt ratio could fail to meet our previous expectations of 15% to 20% during the next year. EnergySolutions' lowered its guidance for adjusted EBITDA in 2012 to $130 million to $140 million, down $20 million from the $150 million to $160 million guidance it had given during its first quarter earnings release in May 2012. The company has a high adjusted debt balance at $574 million as of its first quarter ended March 31, 2012. We adjust debt to incorporate the capitalization of operating leases, asset retirement obligations, and restricted cash balances related to certain letters of credit. The company's trailing-12-month FFO to debt ratio of 12% was already lower than our expectations, and it could remain between 10% and 15% during the next year absent further debt reduction or improved cash flow. The company indicated the amount of waste volumes shipped to its Clive, Utah, disposal site from its government and commercial customers remains slow and administrative cost savings will take longer to realize than it initially expected. In addition to reduced operating prospects, the changes in key management positions gives rise to additional uncertainty regarding the company's strategic and financial philosophies. Although the former management expressed optimism that a plan of action regarding the release of a $200 million cash-collateralized letter of credit related to the company's Zion decommissioning project was likely to be realized in 2012, it now appears that such resolution could be delayed. CreditWatch The CreditWatch placement indicates our view that there is an increased probability we could lower the ratings on EnergySolutions, perhaps by more than one notch. We expect to resolve or update the CreditWatch placement following a review of our updated expectations for financial performance and the implications of the management changes. Related Criteria And Research Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009 Ratings List Ratings Placed On CreditWatch To From EnergySolutions Inc. Corporate Credit Rating BB-/Watch Neg/-- BB-/Negative/-- Senior Secured BB-/Watch Neg BB- Recovery Rating 4 4 EnergySolutions LLC Senior Secured BB+/Watch Neg BB+ Recovery Rating 1 1 Senior Unsecured BB-/Watch Neg BB- Recovery Rating 4 4 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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