Monday, April 1, 2002
Moody's cuts bankrupt Covanta Energy's senior secured debt
NEW YORK, April 1 - Moody's Investors Service has downgraded Covanta Energy Corporation's
senior secured debt rating to Caa3 from Caa2. The Ca rating on the company's subordinated
debt is confirmed. Moody's has taken this action in response to Covanta's filing today for
Chapter 11 reorganization with the U.S. Bankruptcy Court in the Southern District of New
York and in particular its announcement that it has obtained $463 million of
debtor-in-possession financing from its existing bank group.
The bank group had previously been secured on a pari-passu basis with the holders of
Covanta's 9.25% senior debentures. The debtor-in-possession financing in effect puts the
banks in a more senior position vis-a-vis the debenture holders and could negatively
affect recovery levels on Covanta's senior debt.
The Chapter 11 filing came after the company was unable to complete a satisfactory
restructuring and attract outside capital since it announced in December that it was
pursuing strategic alternatives. The company has determined that reorganization under
Chapter 11 is the only alternative available to permit it to accomplish its long-term goal
of disposing of its remaining non-core entertainment and aviation businesses and focusing
on its core waste-to-energy, independent power and water businesses.
Covanta has also been able to secure a non-binding Letter of Intent with Kohlberg Kravis
Roberts & Co. (KKR) for a $225 million
equity investment under which KKR would acquire Covanta upon emergence from Chapter 11.
Covanta Energy, headquartered in Fairfield, NJ, is primarily an energy company focusing on
waste-to-energy, independent power, and water and wastewater businesses.