"In the absence of rapid execution of these credit supportive actions, a multiple-notch downgrade is likely. We do not expect the company to withstand such a rating action," S&P said.
Angie Storozynski, an analyst with Macquarie Research, said Constellation's recent stock tumble, combined with low credit ratings, has given it little choice but to sell all or part of the company.
The company disclosed in August that it miscalculated the amount of collateral it would need in case of a credit rating downgrade, a mistake that Constellation Chief Executive Officer Mayo A. Shattuck III called inexcusable. In the aftermath, Fitch Ratings and S&P cut Constellation's rating to BBB from BBB+, which triggered about $106 million in collateral requirements from certain company contracts.
Because it is a commodity-trading business, as its credit rating falls, Constellation has to put up more collateral. For instance, if its rating were downgraded to junk status, it might have to put up as much as $3.3 billion, Storozynski said.
"As far as I'm concerned, they have a sufficient amount of money," she said. "The markets are overreacting, and the situation doesn't look pretty now."
Storozynski noted that the company had already been looking to sell parts of the business.
Constellation said last month that it plans to sell its upstream gas and coal/freight businesses to raise cash. Moreover, Shattuck 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.
"They were already addressing this issue before, but now the situation has gotten out of control," Storozynski said.
Craig Pirrong, director of the Global Energy Management Institute at the University of Houston, said another downgrade from the rating agencies could trigger a credit crisis from which Constellation might not recover.
The corresponding increase in the amount of collateral it would have to post - more than $680 million - would make a sale of the company or liquidation likely outcomes, he said.
"A trading company that looks healthy can all of a sudden face great difficulty just to stay in business," he said. "And I can point to more examples of companies that didn't recover than companies that did.
"It's like watching a plane spiral out of the sky. Once it starts, there's not much the pilot can do to stop it."
