Duke Energy Notes Rated `A+' by Fitch.Business Editors & Analysts NEW YORK--(BUSINESS WIRE)--Jan. 9, 2002 Fitch has assigned an `A+' rating to Duke Energy Corp.'s (Duke Energy) new $750 million issue of unsecured notes. The financing includes $250 million of three-year floating-rate notes and $500 million 10-year fixed-rate senior notes. The floating-rate notes and the senior notes are pari passu [Latin, By an equal progress; equably; ratably; without preference.] Used especially to describe creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other. PARI PASSU. By the same gradation. with Duke Energy's existing and future unsecured and unsubordinated debt Unsubordinated Debt A loan or security that ranks above other loans or securities with regard to claims on assets or earnings. Also known as a senior security. Notes: . Proceeds will be used to repay commercial paper incurred to refinance first mortgage bonds that were retired in 2001 and for general corporate purposes. The ratings reflect Duke Energy's ample equity base and cash flow, the good quality of its assets and the significant earnings contribution from state and federally regulated electric and gas operations. As of Sept. 30, 2001 the franchised electric business accounted for about 38% of consolidated earnings before interest and taxes In financial and business accounting, earnings before interest and taxes (EBIT) is a measure of a firm's profitability that excludes interest and income tax expenses.[1] EBIT = Operating Revenue – Operating Expenses + Non-operating Income (EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). ) and natural gas transmission about 12%. While 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. on non-regulated activities could be substantial, a significant portion will be discretionary. The ratings also consider Duke Energy's September 2001 agreement to acquire Westcoast Energy, Inc. for $3.5 billion, plus the assumption of about $4.5 billion of debt. Westcoast Energy is a Canadian based energy company with strategic interests in natural gas pipelines, gas gathering and processing facilities, gas storage and gas distribution. The $3.5 billion purchase price will be funded with equal amounts of common equity and hybrid securities, most likely in the form of mandatory convertible Mandatory Convertible A type of convertible bond that has a required conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying common stock. debt. (Duke pre-funded $750 million of the purchase price with a mandatory convertible debt offering in November 2001.) Duke management expects the transaction to close in the first quarter of 2002. The acquisition will increase the earnings contribution from federally regulated natural gas operations and reduce business risk. Westcoast Energy's businesses are fee based, which limits commodity price risk. Future funding requirements of Westcoast Energy are not expected to require additional capital from Duke Energy or its affiliates. Duke Energy's lack of familiarity with Canadian regulation poses some risk, but management has a long history of strong regulatory relations in the US. During 2001, Duke Energy strengthened its capital base with the issuance of about $975 million of common equity and roughly $1.5 billion of mandatory convertible debt, to which Fitch attributes considerable equity credit. As of Sept. 30, 2001, the consolidated capital structure included 44% debt, 14% 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". , 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. and minority interests and 42% common equity. The ratio of operating EBIT (excluding minority interests) to interest was 4.3 times (x). After completing the permanent acquisition financing for Westcoast Energy in 2002, the consolidated debt ratio is expected to be about 45%, including non-recourse debt Non-Recourse Debt A loan that is secured by some sort of collateral, usually property. The issuer can seize the collateral if the borrower defaults. Notes: These types of projects are characterized by high capital expenditures, long loan periods, and uncertain revenue . Duke has reported Enron exposure of about $100 million. While not insignificant, it accounts for less than 1% of Duke's $12.5 billion of common equity and should not have a significant impact on leverage. |
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