AES, National Power plc Affd By Fitch IBCA On DRAX Purchase.NEW YORK--(BUSINESS WIRE)--Aug. 19, 1999-- Fitch IBCA IBCA International Braille Chess Association IBCA Institute of Burial and Cremation Administration IBCA Integrated Business Communications Alliance IBCA International Barbeque Cookers Association IBCA Department of Interior Board of Contract Appeals affirms its ratings of outstanding debt, listed below, of The AES Corp. (AES) following the announcement of AES' agreement to acquire the U.K.'s largest power station, the 4 gigaWatt gig·a·watt n. Abbr. GW One billion (109) watts. Drax Complex from U.K. generator National Power plc. The acquisition price is estimated at UK1.875 billion ($3 billion), with possible downward adjustments for certain factors such as closing date. Fitch IBCA's credit affirmation is based on the following factors: the Drax facility is among the most efficient coal-fired base-load capacity in the U.K. pool; no further capital expenditures will be required to meet existing air quality and emissions compliance standards; the purchase price is to be funded with a mixture of non-recourse senior and subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". and equity or equity-like parent company funding; and the acquired business is expected to upstream positive cash flow from the outset. Furthermore, the acquisition will further reduce AES's exposure to emerging market investments in Asia and South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. . While AES will be exposed to merchant market risk after the expiration of a transitional contract with National Power in March, 2000, it has entered into a hedging contract with an unnamed counterparty Counterparty The other participant, including intermediaries, in a swap or contract. to fix the price of at least 50% of the Drax output for a significant term, reducing AES's potential exposure to price reductions in the U.K. wholesale market. U.K. generators have seen steep declines in contract prices since the expiry of the 1993-1998 coal-backed sales contracts Sales Contract Contract between a seller and buyer for the sale of goods, services, or both. . Further pressure is likely from the replacement of the current pool system with a bilateral trading market, expected over 2000/2001. The current moratorium A suspension of activity or an authorized period of delay or waiting. A moratorium is sometimes agreed upon by the interested parties, or it may be authorized or imposed by operation of law. on the construction of new gas-fired plant (which stymied AES' own plans to build a 380MW plant near Manchester) will mitigate some of this pressure. AES has interests in six power stations in the U.K., and is familiar with the political, regulatory and economic environment. Fitch IBCA will continue to monitor management's progress in funding the acquisition and negotiating output contracts. The impact of RETA RETA Regional Technical Assistance RETA Regional Educational Technology Assistance RETA Refrigerating Engineers and Technicians Association RETA Refrigerating Engineers & Technicians Association RETA Refrigeration Education Training Association (Review of Electricity Trading Arrangements-the successor to the current wholesale pool) on all participants will also be assessed as part of the agency's on-going coverage of the U.K. market. At the same time, National Power's ratings remain at `A/F A/F Airfield A/F Air-to-Fuel ratio A/F Across Flats (hex head of screws) A/F Alpha Flunk 1'. The disposal of the Drax station was announced at the time of the acquisition of the retail supply business of Midlands Electricity The Midlands Electricity Board was formed in 1947, under the Electricity Act of that year. The counterpart of the East Midlands board, it served southern, and western parts of Warwickshire, as well as the counties of Worcestershire, Herefordshire, Shropshire, and Staffordshire, as in November 1998, and was factored into the ratings at that time. National Power has not yet determined how the Drax sale proceeds will be deployed, and any decision will most likely come after the conclusion of a strategic review this autumn. While a share buyback remains a possibility, the group has already also indicated that the step change in U.K. generation profitability may lead to a conservative review of the group's underlying dividend policy. Sale of Drax will leave National Power with a 12% market share of generation output, now almost matched by its supply/trading market share through both its own commercial power sales and Midland Electricity sales to the retail (household) market. -0-
AES ratings affirmed are:
-- $600 million corporate revolving bank loan at 'BB+',
-- $700 million in senior unsecured notes at 'BB+',
-- $1.1 billion senior subordinated notes at 'BB',
-- $150 million convertible junior subordinated debentures at 'B+',
and
-- $550 million term convertible securities, issued by AES Trusts I
and II at 'B+'.
-0- AES corporate debt relies on cash flows obtained primarily from dividends upstreamed from the company's equity ownership in leveraged electricity generating facilities and distribution subsidiaries. Therefore, the AES corporate debt is structurally subordinated to over $5 billion of non-recourse project and operating company operating company A business that engages in transactions with outsiders. debt. AES is a developer, owner, and operator of electric power generation and distribution facilities in various parts of the world. National Power owns and operates generation plant in the U.K., U.S., Australia, Portugal, Pakistan and Turkey. |
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