FORM 8-K
CURRENT REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JUNE 26, 2002
COMMISSION REGISTRANT; STATE OF INCORPORATION; IRS EMPLOYER
FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
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1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(313) 436-9261
1-5611 CONSUMERS ENERGY COMPANY 38-0442310
(A Michigan Corporation)
212 West Michigan Avenue
Jackson, Michigan
(517) 788-1030
1-2921 PANHANDLE EASTERN PIPE LINE COMPANY 44-0382470
(A Delaware Corporation)
5444 Westheimer Road, P.O. Box 4967
Houston, Texas 77210-4967
(713) 989-7000
ITEM 5. OTHER EVENTS
APPOINTMENTS AND RESIGNATIONS OF EXECUTIVE OFFICERS
On July 22, 2002, CMS Energy Corporation announced the appointment of Thomas J.
Webb as executive vice president and chief financial officer of CMS Energy and
Consumers Energy Company, effective in August 2002. Mr. Webb will succeed
executive vice president, chief financial and administrative officer Alan M.
Wright, who is leaving CMS Energy and Consumers Energy in August to join another
company outside the energy industry.
On June 26, 2002, Rodger A. Kershner resigned his positions as senior vice
president, general counsel and secretary of CMS Energy and senior vice president
and secretary of Consumers Energy. On June 27, 2002, S. Kinnie Smith, Jr. was
named to the positions of vice chairman and general counsel of CMS Energy and
vice chairman of Consumers Energy. Mr. Smith's formal election to CMS Energy's
board of directors will occur at the board's next meeting on August 1, 2002,
filling the vacancy created by the resignation from the board of William T.
McCormick, Jr. in June 2002.
AGREEMENTS TO SELL CMS OIL AND GAS COMPANY
On July 22, 2002, CMS Energy announced it had signed a definitive agreement and
a letter of intent that together provide for the sale of CMS Energy's oil and
gas exploration and production unit, CMS Oil and Gas Company, for approximately
$232 million, which will result in a second quarter after tax loss of
approximately $110 million. The buyers under the definitive agreement (which
consisted of a primary definitive agreement and a separate stock purchase
agreement) will be Perenco S.A., a privately held exploration and production
company, and its affiliated companies. The primary definitive agreement with
Perenco S.A. and its affiliates covers their purchases of the stock of CMS Oil
and Gas Company and its primary international subsidiary, with the exception of
subsidiaries holding CMS oil and gas interests in each of Venezuela and
Colombia. Consummation of this primary sale transaction is subject to customary
closing conditions, including notices to affected governments and partners. The
Venezuelan subsidiary is the subject of a separate stock purchase agreement with
a Perenco affiliate, and its sale is subject to certain governmental approvals
relating to the Venezuelan concession. Negotiation of a third definitive
agreement is actively underway with another party for CMS Oil and Gas Company's
interests in Colombia, which are currently covered by the letter of intent.
Execution of the definitive agreement for the Colombian interests as well as
closings on all three sales are expected in the third quarter, although CMS
Energy cannot make any assurances as to completion of all such sales or such
timing.
COMPLETION OF NEW CREDIT FACILITIES AND DIVIDEND REDUCTION
On July 12, 2002, CMS Energy and its subsidiaries (the "Company") reached
agreement with its lenders on five credit facilities totaling approximately $1.3
billion of credit for CMS Energy and its CMS Enterprises Company and Consumers
Energy subsidiaries. The agreements were executed by various combinations of up
to 21 lenders and by the Company as follows: a $295.8 million revolving credit
facility by CMS Energy, maturing March 31, 2003; a $300 million revolving credit
facility by CMS Energy, maturing December 15, 2003; a $150 million short term
loan by CMS Enterprises, maturing December 13, 2002; a $250 million revolving
credit facility by Consumers Energy, maturing July 11, 2003; and a $300 million
term loan by Consumers Energy, maturing July 11, 2003 with a one-year extension
at Consumers Energy's option.
Pursuant to restrictive covenants in the CMS Energy $295.8 million facility and
the CMS Enterprises $150 million facility, CMS Energy is limited to quarterly
dividend payments of $0.1825 per share and must receive $250 million in net cash
proceeds from the planned issuance of equity or equity-linked securities by
December 31, 2002 in order to pay a dividend thereafter. The CMS Energy $300
million facility does not have the foregoing restrictive covenant, but does
include a limitation on cash dividends if CMS Energy's level of Cash Dividend
Income to interest expense falls below 1.05 to 1.00. As a result of these
dividend restrictions, CMS Energy's board of directors announced its intent to
cut the CMS Energy common stock dividend by approximately 50 percent, to an
annual rate of 72 cents per share. Also pursuant to restrictive covenants in its
facilities, Consumers Energy is limited to dividend payments that will not
exceed $300 million in any calendar year. In 2001, Consumers Energy paid $189
million in common stock dividends to CMS Energy.
The facilities are secured credits with mandatory prepayment of borrowings under
certain of the facilities using proceeds from asset sales and capital market
issuances. The CMS facilities grant the applicable bank groups either first or
second liens on the capital stock of CMS Enterprises and its major direct and
indirect domestic subsidiaries, including Panhandle Eastern Pipe Line Company
(but excluding subsidiaries of Panhandle). The Consumers Energy facilities grant
the applicable bank groups security through first mortgage bonds.
The new credit facilities essentially replace or restructure previously existing
credit facilities or lines at CMS Energy or Consumers Energy, without
substantially changing credit commitments. The three CMS facilities aggregating
$745.8 million represent a restructuring of a prior CMS Energy $300 million
three-year revolving credit facility maturing in June 2004 and a prior CMS
Energy $450 million revolving credit facility originally maturing June 2002, but
previously extended through July 12, 2002. The two Consumers Energy facilities
aggregating $550 million replace a $300 million revolving credit facility that
matured July 14, 2002 as well as various credit lines aggregating $200 million.
All such prior credit facilities and lines were unsecured.
The CMS Energy $300 million facility and the CMS Energy $295.8 million facility,
as well as the CMS Enterprises $150 term loan, each have an interest rate of
LIBOR plus 300 basis points. The Consumers Energy $250 million facility and the
Consumers Energy $300 million term loan have interest rates of LIBOR plus 200
basis points (although the rate may fluctuate depending on the rating of
Consumers first mortgage bonds) and LIBOR plus 250 basis points, respectively.
The CMS facilities also have financial restrictions that limit CMS Energy's
level of Consolidated Debt to Consolidated EBITDA to not more than 5.75 to 1 for
the immediately preceding four quarters and its level of Cash Dividend Income to
Interest Expense to not less than 1.25 to 1.0 for the immediately preceding four
quarters. The Consumers Energy facilities' financial covenants limit its level
of Total Consolidated Debt to Total Consolidated Capitalization to not greater
than 0.65 to 1.0 and its Consolidated EBITA to Consolidated Interest Coverage to
not less than 2.0 to 1.0 for the immediately preceding four quarters.
For a summary of the terms and conditions of each of the five agreements, see
Exhibit 10.6, Summary Terms and Conditions of Credit Facilities. Copies of each
of the credit facilities as well as the guarantees and pledge agreements
executed by CMS Energy, CMS Enterprises and their major domestic subsidiaries in
support of the credit facilities are filed as exhibits to this Form 8-K.
ROUND-TRIP TRADES
On June 26, 2002, CMS Energy announced that the special committee of its board
of directors selected the law firm Winston & Strawn to help the special
committee launch a previously announced investigation into matters surrounding
round-trip energy trades by the Company's marketing unit, CMS Marketing,
Services and Trading (CMS MS&T). The special committee expects to complete its
work and report to the board within approximately 60 to 90 days from this
launch.
CMS Energy continues to cooperate with previously disclosed investigations by
the Securities and Exchange Commission, the Commodities Future Trading
Commission, the Federal Energy Regulatory Commission and the Department of
Justice, which concern generally round-trip trading and the Company's financial
statements, accounting practices and controls.
As previously disclosed, CMS Energy plans to amend as soon as practical its 2001
Form 10-K and restate its financial statements for 2000 and 2001 to eliminate
the effects of round-trip trades. Ernst & Young LLP has commenced its audit
work, to the extent necessary to support the Company's restatement and filing of
a 2001 Form 10-K/A, but has advised CMS Energy that the re-audit work can only
be completed following receipt of certain assurances regarding the results of
the special committee's investigation.
Because of the nature of these investigations and re-audits, however, CMS Energy
cannot make any assurances as to when the special committee will conclude its
investigation, submit its report to the board and provide adequate assurances to
Ernst & Young, when and with what results Ernst & Young will complete its
re-audit efforts or the Department of Justice, SEC or other regulatory agencies
will complete their investigations.
On July 11, 2002 and July 18, 2002, two Consumers Energy employees filed alleged
class action lawsuits on behalf of the participants and beneficiaries of the CMS
Employees' Savings and Incentive Plan in the United States District Court for
the Eastern District of Michigan. CMS Energy, Consumers Energy and CMS MS&T are
defendants in one action, and CMS Energy, Consumers Energy, and other alleged
fiduciaries are defendants in the other. In connection with round-trip trades,
the complaints allege retirement account losses resulting from breaches of the
fiduciary obligations by the fiduciaries of the Plan. The complaints allege
various counts arising under the Employee Retirement Income Security Act. A copy
of the July 11, 2002 Complaint is filed as an exhibit to this Form 8-K.
PLANS TO SHARPEN BUSINESS FOCUS, IMPROVE CASH FLOW AND
IMPROVE BALANCE SHEET
In addition to the increased liquidity from the CMS Energy common stock dividend
cut described above, on June 26, 2002, CMS Energy announced a series of steps
designed to further sharpen its business focus, improve cash flows and
strengthen its balance sheet. In addition to identifying new assets to be sold,
the company is restructuring its CMS MS&T unit and revising its business plan to
reflect decreased energy trading activities. CMS MS&T will eliminate its
speculative energy trading business line and reduce its work force by
approximately 25 percent, or 50 positions. CMS Energy also announced plans to
sell its energy performance contracting subsidiary, CMS Viron, as well as
Panhandle's one-third ownership interest in Centennial Pipeline LLP, an
interstate refined petroleum products pipeline.
On July 9, 2002, CMS Energy announced a series of initiatives to reduce
operating costs by an estimated $50 million annually. These initiatives include
the following:
-Relocating CMS Energy's corporate headquarters from Dearborn, Michigan, to a
new headquarters building currently under construction in Jackson, Michigan. The
Jackson headquarters building is scheduled to open beginning in March 2003 and
will house an estimated 1,450 CMS Energy and Consumers Energy employees. The
relocation will reduce corporate employee staffing requirements by an estimated
50 positions, and will reduce office lease, travel, salary and information
technology costs;
-Changes in the Company's 401(k) savings program that provide additional savings
for the Company and enhanced investment options for employee participants, which
changes include the suspension of the 401(k) Company match for 28 months and the
elimination of the Company's incentive match; and
-Changes in the Company's health care plan in order to keep benefits and costs
competitive.
In addition to these initiatives, the Company also announced that compensation
for CMS Energy's Chairman and Chief Executive Officer Ken Whipple will be
largely deferred and based on the performance of CMS Energy common stock,
thereby tying his compensation to the Company's future performance.
RECENT RATING AGENCIES DOWNGRADES
In recent weeks, the credit ratings of the publicly traded securities of each of
CMS Energy, Consumers Energy and Panhandle (but not of Consumers Funding LLC)
have been downgraded by the major rating agencies. The ratings downgrade for all
three companies' securities is largely a function of the uncertainties
associated with CMS Energy's financial condition and liquidity pending
resolution of the round-trip trading investigations and lawsuits, the special
board committee investigation, financial statement restatement and re-audit, and
access to the capital markets. The current ratings are as follows:
S&P MOODY'S FITCH
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CMS ENERGY
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Corporate Ratings BB -- --
Senior Unsecured Debt B+ B3 BB-
(X-TRAS, GTNs,
Unsecured Notes, REPS)
Preferred Securities B Caa1 B-
(QUIPS, ACTS, PEPs)
Outlook/Credit Trend NEGATIVE Review for Rating Watch
Possible Negative
Downgrade
CMS PANHANDLE
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Corporate Ratings BB -- --
Senior Unsecured Notes BB Ba2 BB+
Outlook/Credit Trend Negative Review for Rating Watch
Possible Negative
Downgrade
CONSUMERS ENERGY
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Corporate Ratings BB -- --
Secured Debt BBB- Baa3 BBB
Unsecured Debt B+ Ba1 BB+
Preferred Securities B Ba1 BB-
Outlook/Credit Trend Negative Review for Rating Watch
Possible Negative
Downgrade
CONSUMERS FUNDING LLC
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Securitization Bonds AAA Aaa AAA
As a result of the most recent downgrades, contractual rights were triggered in
several contractual arrangements between Company subsidiaries and third parties.
More specifically, a $69 million loan to Panhandle made in connection with the
December 2001 LNG off balance sheet monetization transaction is subject to a
repayment demand up to the full amount by the unaffiliated equity partner in the
LNG Holdings joint venture, although no such demand has been made to date. In
addition, the construction lenders for the Guardian and Centennial pipeline
projects, each partially owned by Panhandle, have requested acceptable credit
support for Panhandle's guarantee of its pro rata portion of those construction
loans, which portion aggregates $110 million including anticipated future draws.
Further, one of the issuers of a joint and several surety bond in the
approximate amount of $190 million supporting a CMS MS&T gas supply contract has
demanded collateral for up to the full amount of such bond. A second issuer of
surety bonds aggregating approximately $113 million in support of two other CMS
MST gas supply contracts also has a right to request collateral for up to the
full amounts of such bonds, and certain parties involved in those gas supply
contracts have the right to seek replacement surety bonds due to the ratings
downgrade of the current surety bond issuer. The Company is working with its
contractual parties to find mutually satisfactory arrangements, but there can be
no assurance of reaching such arrangements.
FORWARD-LOOKING STATEMENTS
This Form 8-K contains "forward-looking statements" that are subject to risks
and uncertainties. They should be read in conjunction with the "Forward-Looking
Statement Cautionary Factors" in CMS Energy's, Consumers' and Panhandle's Form
10-K, Item 1 (incorporated by reference herein) that discusses important factors
that could cause CMS Energy's, Consumers Energy's and Panhandle's results to
differ materially from those anticipated in such statements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
4.1 $295.8 million revolving credit facility for CMS Energy, due March
31, 2003
4.2 $300 million revolving credit facility for CMS Energy, due December
15, 2003
4.3 $150 million short term loan for CMS Enterprises, due December 13, 2002
4.4 $250 million revolving credit facility for Consumers Energy, due July
11, 2003
4.5 $300 million term loan for Consumers Energy, due July 11, 2003 with a
one-year extension at Consumers' option
4.6 Eighty-First Supplemental Indenture, dated July 12, 2002 to the
Indenture date as of September 1, 1945 between Consumers Energy and
JPMorgan Chase, as Trustee.
4.7 Eighty-Second Supplemental Indenture, dated July 12, 2002 to the
Indenture date as of September 1, 1945 between Consumers Energy and
JPMorgan Chase, as Trustee.
4.8 Summary of Terms and Conditions of Credit Facilities
4.9 Grantors Pledge and Security Agreement for CMS Energy Corporation
4.10 Grantors Pledge and Security Agreement for CMS Enterprises Company
4.11 CMS Energy Pledge and Security Agreement
4.12 Guaranty for CMS Energy Corporation
4.13 Guaranty for CMS Enterprises Company
99.1 Schilling ERISA Complaint dated July 11, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
CMS ENERGY CORPORATION
Dated: July 30, 2002 By: /s/ Alan M. Wright
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Alan M. Wright
Executive Vice President, Chief Financial
Officer and Chief Administrative Officer
CONSUMERS ENERGY COMPANY
Dated: July 30, 2002 By: /s/ Alan M. Wright
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Alan M. Wright
Executive Vice President, Chief Financial
Officer and Chief Administrative Officer
PANHANDLE EASTERN PIPE LINE COMPANY
Dated: July 30, 2002 By: /s/ William J. Haener
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William J. Haener
Chairman of the Board
EXHIBIT INDEX
4.1 $295.8 million revolving credit facility for CMS Energy, due March
31, 2003
4.2 $300 million revolving credit facility for CMS Energy, due December
15, 2003
4.3 $150 million short term loan for CMS Enterprises, due December 13, 2002
4.4 $250 million revolving credit facility for Consumers Energy, due July
11, 2003
4.5 $300 million term loan for Consumers Energy, due July 11, 2003 with a
one-year extension at Consumers' option
4.6 Eighty-First Supplemental Indenture, dated July 12, 2002 to the
Indenture date as of September 1, 1945 between Consumers Energy and
JPMorgan Chase, as Trustee.
4.7 Eighty-Second Supplemental Indenture, dated July 12, 2002 to the
Indenture date as of September 1, 1945 between Consumers Energy and
JPMorgan Chase, as Trustee.
4.8 Summary of Terms and Conditions of Credit Facilities
4.9 Grantors Pledge and Security Agreement for CMS Energy Corporation
4.10 Grantors Pledge and Security Agreement for CMS Enterprises Company
4.11 CMS Energy Pledge and Security Agreement
4.12 Guaranty for CMS Energy Corporation
4.13 Guaranty for CMS Enterprises Company
99.1 Schilling ERISA Complaint dated July 11, 2002