Duke ( DUK) might have preferred coal to its holiday "gift" from Moody's. After all, Duke could use the coal to fire a power plant or something. But credit downgrades, like those issued Monday for Duke, aren't so easily exploited. At best, Duke can feel thankful the cuts aren't any deeper. The North Carolina energy giant, which has escaped the brunt of the merchant energy meltdown, doesn't have a junk credit rating -- yet. Most of Duke's credit ratings remain within the strong A category, even after Moody's cut some of them by as much as two notches Monday. But the senior unsecured debt for Duke Capital -- which carries the burden for Duke's troubled unregulated businesses -- has fallen to Baa2, just one notch above junk status. Moody's pointed to ongoing turmoil throughout the merchant energy sector as a trigger for its actions. "Moody's lowered Duke Capital's ratings in response to lower actual and anticipated earnings and cash flow as a result of continued weakness in wholesale energy markets both in the U.S. and abroad," the ratings agency wrote Monday. "Duke Capital has taken on substantial amounts of leverage in order to build out its merchant energy subsidiary ... and now faces diminishing cash flow to service that debt." Moody's outlook for Duke's credit remains negative. The credit downgrades, together with a stock downgrade by Lehman Brothers, weighed the company down on Monday. The stock slid 33 cents Monday, to $19.76. Lehman Brothers analyst Daniel Ford cited a possible credit downgrade -- just hours ahead of Moody's action -- as one of many reasons to avoid the stock. He also lowered his 2003 earnings forecast for the company, dropping it from $1.80 to $1.71 a share, and cut his 12-month price target for the stock to $15. "A critical element of the company's performance is the merchant power and energy trading and marketing results," Ford wrote. "We believe the current lack of liquidity in the power markets and the decrease in creditworthy counterparties will make this a very challenging endeavor." In response to deteriorating industry conditions, Duke laid out plans last week to restructure its troubled merchant energy unit. The company intends to curtail its high-risk speculative trading operations, but it has stopped well short of following weaker players -- like Aquila ( ILA) and Dynegy ( DYN) -- out of the trading business altogether. "Our energy marketing function will be a key focus area for us going forward," Duke announced last Thursday. "We are moving quickly to position the organization for stability and certainty and look forward to a productive 2003 and beyond as we implement this business model." Duke shares have lost roughly half their value since Enron's bankruptcy triggered an industrywide meltdown more than a year ago.