S&P cuts Consol Energy ratings

Standard & Poor's said it lowered its ratings on Pittsburgh-based Consol Energy Inc. to BB- and placed them on CreditWatch with negative implications.

Downgraded to BB- are the company's corporate credit, senior unsecured debt, and bank loan facility. The preliminary subordinated debt rating was cut to B from BB-.

S&P said the rating action reflects concerns about the company's liquidity position, which has been materially impacted by the recent operating disruptions. Indeed, the company announced that earnings per diluted share for 2003 will meaningfully decline from 37 cents per diluted share to a negative 2 cents to negative 5 cents per diluted share.

The earnings revision and the resulting decline in liquidity resulted from a fourth-quarter $7 million premium increase ($28 million from October 2003 to October 2004) related to union health and retirement funding; a roof collapse in late October at the Bailey Mine, which resulted in the loss of nine days of production; lost production at the Enlow Fork Mine, because of the expelling of methane gas; and several other disruptions.

Moreover, S&P said it believes the company's ability to quickly improve liquidity is uncertain following the receipt of an anonymous letter alleging misappropriation of funds and other wrongdoings by several company directors and officers. Independent members of the board of directors are conducting an investigation in conjunction with outside legal counsel. Additionally, the Securities and Exchange Commission has initiated an inquiry into the matter.

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