Constellation Energy stock off on collateral fear

NEW YORK (Reuters) - Shares in Constellation Energy Group CEG.N tumbled nearly 18 percent on Tuesday to their lowest level in almost two years after the power producer said a credit rating downgrade could force it to post billions of dollars in extra collateral.

Constellation said in a quarterly report with the U.S. Securities and Exchange Commission late on Monday that it had underestimated its collateral liabilities by $1.6 billion in the event its debt rating was cut three notches.

High volatility in fuel and electricity prices have increased the risk of a downgrade, and the company could be forced to post $3.37 billion in collateral to cover those contracts if its debt is downgraded three levels.

One analyst said that disclosure coupled with ongoing concerns about the transparency around the company’s cash flows were worrying investors.

The cost to insure Constellation’s debt with credit default swaps jumped on Tuesday to 169.5 basis points, or $169,500 per year for five years to insure $10 million in debt, from 146 basis points at Monday’s close, according to Markit Intraday.

Shares in Constellation were down 16.7 percent, or $12.20, at $60.84 per share on the New York Stock Exchange after tumbling to a session low of $60.08.

Reporting by Matt Daily, additional reporting by Karen Brettell, editing by Mark Porter