Fitch Assigns 'BBB' Rating to Indiana Michigan Power's $400MM Issuance Notes.

CHICAGO -- Fitch Ratings has assigned a rating of 'BBB' to Indiana Michigan Power Company's (IMP) issuance of $400 million 6.05% senior unsecured notes, due March 15, 2037. Proceeds from the sale will be used to pay down maturing debt and for general corporate purposes. The Rating Outlook is Stable.

The ratings for IMP reflect the company's stable and predictable cash flows from its vertically integrated utility operations, a relatively constructive regulatory environment in Indiana and an improving financial position. Rating concerns facing the company relate to the operating and financial risk of nuclear operations, as well as exposure to a large industrial customer base. Fitch's analysis also takes into consideration the financial and functional ties to parent, American Electric Power Co., Inc. (AEP, Issuer Default Rating 'BBB'; Stable), which include IMP's participation in the AEP power pool and coal procurement practices, as well as the parent company's highly centralized electric and treasury operations. As a result, any deterioration in the credit quality of AEP could impair the ratings of IMP.

IMP's credit metrics have improved significantly following the extensive outage at its Cook nuclear plants in 2000-2002, and since then the company has posted very strong results for the 'BBB' rating category. Going forward, due to increases in O&M and a decrease in depreciation rates, Fitch projects that credit ratios will decline to a level more consistent with the rating, with interest and cash coverages in the mid-4x range over the next several years. Leverage is forecasted to increase steadily over the same time period.

In December 2005, IMP filed a petition with the Indiana Utility Regulatory Commission (IURC) for accounting authorization to revise the depreciation rates applicable to its electric utility plant in service. The company recommended a decrease in annual depreciation expense of approximately $45 million on an after-tax Indiana jurisdictional basis. Hearings have been held, and an order was received on October 19, 2006 which denied the request. IMP filed a petition for reconsideration on November 8, 2006. At this time, the company cannot determine what the IURC response will be to its petition.

A wholly-owned subsidiary of American Electric Power Co., Inc., IMP is engaged in the generation, transmission, and distribution of electric power to more than 580,000 customers in northern and eastern Indiana and southwestern Michigan. I&M operates 3,603 megawatts (MW) of coal-fired generation in Indiana, 2,143 MW of nuclear generation in Michigan, and 22 MW of hydro generation in both states.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.