Constellation "remains under significant pressure [yesterday] as investors remain concerned about the company's potential loss of access of liquidity and the potential evaporation of trading counterparties for its commodity business in the wake of financial market turmoil," JPMorgan analyst Andrew Smith wrote in a research report yesterday.
He noted that increased costs to insure Constellation's debt also may be adding to liquidity concerns.
Credit-default swaps rose 366 basis points to 663 basis points midafternoon yesterday, according to CMA Datavision. That means it costs about $663,000 to insure $10 million of the debt, up from about $180,000 on Sept. 12.
Moreover, banks and other Wall Street investment firms could pull back on energy deals to reduce their risks, Smith said.
Mayo A. Shattuck III, Constellation's CEO, said in July that the company has started to assess capital requirements of the global commodities business and it was exploring strategic alternatives that could involve a partnership agreement.
"No question that the company should have been more aware of its credit exposures and the large size of commodities compared to the balance sheet especially as the financial markets started to sour a year ago," wrote Credit Suisse analyst Dan Eggers, noting that his firm's instinct is to stick with the company in the long term.
Douglas G. Ober, chairman and chief executive of closed-end mutual funds Adams Express Co. and Petroleum & Resources Corp. in Baltimore, said he hasn't seen or read anything to indicate Constellation could be hurt by its exposure to Lehman.
"Investor fear is such that if Lehman's name is associated with someone for whatever reason, people are going to say, 'I don't want anything to do with it,' " Ober said. "That's the height of market fear, in my opinion."
Jeffrey Frankel, the James W. Harpel professor of capital formation and growth at the Harvard Kennedy School of Business, said the market has given people who normally might not worry things to be concerned about.
"There are some worrisome things to react to," Frankel said. "A lot of people read the papers yesterday and said, 'Oh, my gosh.' People are getting very alarmed, even people who don't worry about these things. I think that there is a bit of a panic reaction."
Constellation's stock loss comes nearly a month after its shares fell 16 percent in one day, when one analyst questioned the company's accounting and another raised concerns about the effects of a potential credit downgrade.
