Constellation Energy extends drop on debt fears
NEW YORK (Reuters) - Shares in utility operator Constellation Energy Group Inc (CEG.N) fell as much as 58 percent on Tuesday on fears that banks may pull its credit lines.
The stock fall, following an 18 percent drop on Monday, came despite Constellation saying the Lehman Brothers LEH.N bankruptcy would not have a material adverse effect on the company or its subsidiaries.
In a research note, Citigroup Gobal Markets said Constellation's stock fall was exacerbated by the Lehman bankruptcy. And Credit Suisse cited "worries that the $2 billion credit facility from UBS/RBS (Royal Bank of Scotland) could be pulled."
"Investing in Constellation is tough," said Credit Suisse.
The cost to insure Constellation's debt soared 60 percent Tuesday to a record high. Credit default swaps jumped to 478 basis points, or $478,000 per year, to insure $10 million in debt for five years, from 304 basis points on Monday, according to Markit Intraday.
Standard & Poor's equity research also cut its recommendation on Constellation to 'hold' from 'buy' and its price target to $33 per share from $46.
Constellation stock extended its early drop to fall as far as $20.15 per share, but recovered part of that decline in afternoon trade. The shares were at $27.75, down 42 percent on the New York Stock Exchange.
(Reporting by Steve James; editing by Jeffrey Benkoe, Bernard Orr)
