Fitch Ratings: US Power Companies Face Little Improvement Through 2003.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 20, 2002

Fitch Ratings has today published a special comment highlighting the impact on credit ratings of the events of 2002 in the investor-owned utility and wholesale energy sectors. 2002 has seen more than 100 downgrades, affecting one in four of Fitch's rated coverage in the sector. The comment, titled 'Fixing the Machine? US Power & Gas Sector Challenges', also looks at the actions market participants will have to take to stabilize ratings in the current environment.

'Multiple downgrades have accounted for a lot of the statistical damage,' said Richard Hunter, Group Managing Director of the Fitch Ratings Global Power group in North America. 'Half of the actions involve issuers ratings being dragged down by problems elsewhere in their corporate group, while multiple downgrades at just nine groups accounted for 40% of negative actions.' An analysis of the rated issuer base reveals that less than 15% face near-term liquidity threats, although 'these are the 15% giving us the most concern,' Hunter said.

The report discusses the changing face of liquidity needs, and the spiraling costs of refinancing. 'The margins we've seen in recent refinancings raise the bar for future negotiations with banks,' said Ellen Lapson, Managing Director in the Global Power group, 'though they may carry the silver lining of attracting new sources of capital into the marketplace.' Beyond near-term liquidity threats, however, exposure to continuing wholesale market weakness, a variety of litigation and regulatory investigations and continuing counterparty risk have combined to leave one in four of Fitch's coverage on either Rating Watch Negative or a Negative Rating Outlook.

The report also focuses on how Fitch is recalibrating certain tools within its methodology for the sector to deal with the current credit environment. 'Overall, we feel that the events of the year have endorsed a lot of what we have been doing in the past,' said Hunter. 'A focus on cash flow rather than earnings; separation but not delinkage between parent and subsidiary ratings; differentiation of companies with strong long-term potential -- these have become hot topics for others during this year, but have been part of our methodology all along.'

'Fixing the Machine? US Power & Gas Sector Challenges' is available from the 'Highlight Reports' section of the 'Global Power' home page on the Fitch Ratings web site at 'www.fitchratings.com'. A copy of the report can also be attained by contacting Janette Curtis-Figueroa or Kim Addison at 212/908-0500, or the Ratings Desk at 800/893-4824.