Covanta Corp. has emerged from bankruptcy protection without harming the credit qualityof any of the solid-waste project bonds municipal issuers sold for waste-to-energyfacilities owned and operated by the Fairfield, N.J.-based company.
Rating agencies said that they consider the company's emergence from bankruptcy andsubsequent acquisition by Danielson Holding Corp. to be credit neutral.
"We don't have any reason to believe that Covanta's reorganization will lead to anylasting affects on these credits," said Aaron Freedman, Moody's Investors Serviceanalyst. "And we don't believe the acquisition of Covanta by Danielson will have anydirect credit impact at this point. These projects are all secured by municipal servicecontracts that will continue to be guaranteed by Covanta."
Last week, the Bankruptcy Court of the Southern District of New York approved the saleof Covanta's energy operations to Danielson Holding, which is a publicly-traded holdingcorporation with interests in marine transportation and insurance products that prior tothe acquisition had no interests in the waste-to-energy market.
On March 5, the court had approved Covanta's reorganization and emergence frombankruptcy protection. The energy operations will continue under the Covanta name andremain headquartered in Fairfield, N.J. with its existing management structure.
There are no plans to terminate any existing municipal contracts, according to LouWalters, a spokesman for Covanta.
Covanta entered bankruptcy in April 2002. As a result, rating agencies put nine solidwaste project bond issues under review for possible downgrade.
The bonds that were put under review were sold by: Arlington County, Va., IndustrialDevelopment Authority, the Bristol, Ct., Resource Recovery Facility OperationalCommission, the Babylon, N.Y., Industrial Development Agency, the Connecticut ResourcesRecovery Authority, the Fairfax County, Va., Economic Development Authority, LakeCounty, Fla., Onondaga County, N.Y., Resource Recovery Agency, Suffolk County, N.Y.,Industrial Development Agency and the Union County, N.J., Utilities Authority.
The garbage-burning energy plants were owned and operated by Covanta. The municipalitiesinvolved had entered into long-term contracts to supply garbage to the plants. Two ofthe bond issues, however, were downgraded as a result of legal disputes over tippingfees. The bonds were sold by Lake County, Fla. and Onondaga County, N.Y.
Covanta also operates but does not own garbage-burning plants for seventeen othermunicipalities that had sold solid waste project bonds. This debt was not affected bythe bankruptcy proceedings.
Edward McGlade of Standard & Poor's said Covanta's municipal contracts has remained inplace through the reorganization and the only municipal credits that remain a concernare the two that have filed litigation against Covanta.
Standard & Poor's rates the $70 million in Lake County bonds BBB and does not rateOnondaga County. Moody's rates both Lake County and Onondaga County Ba3. The Onondagabonds have since been refinanced and Moody's has not assigned a rating to the new bonds.
Though analysts have said Covanta's bankruptcy shouldn't have any further affect on thecredits, they will both continue to monitor the suits in case a ruling causes adisruption in operations for the issuers.
