Correction: Fitch Revises Rtgs Of LG&E Energy & Subs; Rts PowerGen US.Business Editors NOTE: This press release supercedes the original sent earlier today. NEW YORK--(BUSINESS WIRE)--April 9, 2001 Fitch has downgraded the long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. ratings of LG&E Energy, Louisville Gas and Electric Co. (Louisville) and Kentucky Utilities Kentucky Utilities (KU) is based in Lexington, KY and provides electricity to 77 counties in Kentucky and 5 counties in Virginia (under the name Old Dominion Power.)[1]. History Kentucky Utilities was formed in 1912 to serve five areas of Kentucky. (KU), following a review of the impact of acquisition by PowerGen plc of the UK. The commercial paper ratings of Louisville and KU, as well as the ratings of LG&E Capital Corp. have been affirmed. The ratings of the utilities were originally placed on Rating Watch Negative following the announced acquisition of parent LG&E by PowerGen Plc. in early 2000. Following today's announcement of an agreed bid for the PowerGen group by E.ON E.ON Energy On (German energy company) AG of Germany, ratings for LG&E Capital Corp. and for LG&E Energy have been placed on Rating Watch Positive. The ratings of Louisville and KU have been placed on Rating Watch Evolving. Fitch has also established a rating of `BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. +' for the long-term debt of PowerGen US Holdings, reflecting the guarantee provided by PowerGen plc, and this rating is also placed on Rating Watch Positive. All of the actions resulted from a global review by Fitch of the PowerGen plc group. Rating actions taken on the PG group's UK subsidiary businesses are detailed in Fitch's press release, also issued today, entitled `Fitch Rates PowerGen PLC 'BBB+'; UK Group Ratings Revised On Acquisition'. Louisville and KU will benefit from stable tariffs through mid-2003 with the opportunity to reduce operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. through consolidation of the adjacent utilities' cost structure. The utilities' interest coverage and financial ratios were adversely affected by a moderate rate reduction in 2000. The two Kentucky utilities have stable power supply and can profitably sell surplus energy in the wholesale power market. Additionally, both Louisville and KU have low leverage. While Louisville and KU are not fully ring-fenced from the higher leverage present within the PowerGen US group, bondholders derive some benefit from limitations on the utilities' dividends and distributions. Higher capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. is anticipated over the next few years due to bring coal-fired power stations into environmental compliance and to install gas-fired peaking facilities to satisfy growth in peak demand. LG&E Capital, owner and funding vehicle for LG&E's non-regulated and non-US businesses, derives its credit support from a formal support agreement provided by LG&E Energy. LG&E Energy has no debt other than the credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing it provides to Capital and guarantees provided for contractual exposures of energy marketing and trading contracts. A positive factor for LG&E Energy's rating is the expected stability of dividends from Louisville and KU. The rating also reflects residual unfavorable contract exposures for power marketing activities and an aggressive planned capital expenditure program Planned capital expenditure program Budgeted or projected outlays for major expenditures on permanent or fixed assets as outlined in the corporate financial plan. . Over the past two to three years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time credit of LG&E Energy and Capital was adversely affected by contractual obligations under a long-term, full requirements contract A written agreement whereby a buyer assents to purchase for a sufficient consideration (the inducement to enter into an agreement) all the merchandise of a designated type that he or she might require for use in his or her own established business. to proved energy to Oglethorpe Power Oglethorpe Power Corporation medium-sized electric utility in Georgia, United States. Formed in 1974, Ogelthorpe is a not-for-profit cooperative owned by the 38 electric membership corporations that it serves. The utility's headquarters are in Tucker, Georgia. Corporation. LG&E Energy has recognized over $500 million in net after-tax losses relating to losses of the power marketing activities, and management believes that it has fully recognized the anticipated losses on the Oglethorpe contract through the expected termination date termination date, n See expiration date. at the end of 2004. However, delivering power under the contract will continue to affect cash flow through 2004, and there could be additional losses relating to the contract if Oglethorpe's demand increases beyond the current estimate or if natural gas prices exceed the current forecast. High capital spending at LG&E Capital over the next several years will fund the construction of additional peaking capacity. The purpose of the investment will be to mitigate losses relating to the Oglethorpe contract in the near term and to complement the substantial baseload coal-fired generating capacity of Louisville, KU, and Capital. Fitch expects that the program will ultimately result in higher profit contribution from wholesale power generation. PowerGen US Holdings is the intermediate holding company for PowerGen's US businesses. PowerGen US Holdings has over US$2.6 billion of bank loans or commercial paper funding the acquisition of LG&E Energy. Credit support is provided via guarantees of the debt by PowerGen plc. Based on the parent guarantee, Fitch has established a `BBB+' long-term rating and a short-term rating of `F2'. PowerGen plc management intends to reduce substantially the debt of PowerGen Holdings US within the year with the proceeds of asset disposals in various locations. For further information regarding Fitch's ratings of PowerGen plc and the related group, and today's bid announcement by E.ON AG, please refer to Fitch London's press release of the same date. Ratings Downgraded and placed on Rating Watch Positive: LG&E Energy -- Implied Senior Unsecured Debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. from `A+' to `BBB+'. Ratings Downgraded and Placed on Rating Watch Evolving: Louisville Gas and Electric Co. -- Senior Secured Debt from `AA-` to `A+'; -- Senior Unsecured Debt from `A+' to `A'; -- Preferred Stock from `A' to `A-`. Kentucky Utilities -- Senior Secured Debt from `AA-` to `A+'; -- Preferred Stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. from `A' to `A-`. Ratings Affirmed and Placed on Rating Watch Positive: LG&E Capital Corp. -- Senior Unsecured Debt `BBB+'; -- Commercial Paper `F2'. Ratings Affirmed and Placed on Rating Watch Evolving: Louisville Gas and Electric Co. -- Commercial Paper `F1'. Kentucky Utilities -- Commercial Paper `F1'. |
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