Fitch Ratings Downgrades AES & Subs; Removed From Rating Watch.Business Editors NEW YORK--(BUSINESS WIRE)--Feb. 15, 2002 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has downgraded The AES Corp.'s (AES) senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. to 'BB' from 'BB+' and has removed AES' ratings from Rating Watch Negative. Fitch has also downgraded AES' corporate revolver revolver: see small arms. revolver Pistol with a revolving cylinder that provides multishot action. Some early versions, known as pepperboxes, had several barrels, but as early as the 17th century pistols were being made with a revolving chamber to and ROARS to 'BB' from 'BB+', senior 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". to 'B+' from 'BB', convertible junior debentures and trust convertible preferred securities to 'B' from 'B+'. The rating action concludes a review of AES' credit that Fitch began in December of last year. The Rating Outlook for all of the issues listed above is Negative, reflecting the company's tight liquidity situation in the next 12-18 months and AES Corp.'s exposure to the Venezuela Bolivar, which started floating freely against the US dollar Wednesday Feb. 13. Due to Fitch's policy regarding the linkage of ratings of subsidiaries with those of a lower-rated parent, Fitch has also downgraded the ratings of AES' subsidiaries IPALCO IPALCO Indianapolis Power and Light Company Enterprises, Indianapolis Power and Light (IP&L), CILCORP and Central Illinois Central Illinois is a region of the U.S. state of Illinois that consists of the entire central section of the state, divided in thirds from north to south. It is an area of mostly flat prairie. Light Company (CILCO CILCO Central Illinois Light Company ). These ratings are removed from Rating Watch Negative. While IPALCO and IP&L's new Rating Outlook is Stable, CILCORP and CILCO are placed under Rating Watch Evolving to reflect the pending sale by AES. AES' ratings were placed on Rating Watch Negative in late December 2001 due to concern over the company's lack of short-term liquidity and the pending refinancing Refinancing An extension and/or increase in amount of existing debt. of two debt facilities associated with two subsidiaries. In early 2002 the company successfully refinanced or extended maturities of these two financings. The new ratings reflect the high consolidated leverage and high parent company leverage, the challenge of lower profitability from merchant power exposures in the US and UK, the parent company's investment concentrations in various emerging markets, as well as the benefits of significant portfolio diversification Portfolio diversification Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country). . Fitch's ratings also take into consideration recent actions by AES management to tighten controls, conserve cash, and reduce strains on corporate liquidity. AES still faces refinancing risk In banking and finance, refinancing risk is the possibility that a borrower cannot refinance by borrowing to repay existing debt. Many types of commercial lending incorporate bullet payments at the point of final maturity; often, the intention or assumption is that the borrower at the parent level as it has a $300 million senior note maturing in December 2002, a $850 million bank revolving facility in March 2003 and a $425 million bank loan in August 2003. At the same time, AES' liquidity situation could be improved if it succeeds in plans to monetize certain assets in 2002. The effective devaluation devaluation, decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments. of the Venezuelan Bolivar could have significant impact on AES' parent cash flow as its Venezuela subsidiary, C.A. La Electricidad de Caracas (EDC EDC See: Export Development Corp. , Fitch Foreign Currency Rating 'BB-'), had been projected to contribute over 10% of total parent cash flow in 2002. Currently EDC has a semi-annual tariff adjustment mechanism based on changes in inflation, foreign exchange rates and fuel costs. Parent cash flow from EDC could be affected by the timing under which EDC would recover the full amount of devaluation. AES' exposure to any one market or currency is mitigated by the diversified portfolio of investments in different countries and currencies. The AES Corp., founded in 1981, is among the world's largest power developers. It generates and distributes electricity and is also a retail marketer of heat and electricity. AES owns or has an interest in 182 plants, with more than 63,000 megawatts, in 31 countries and also distributes electricity in 11 countries through 21 distribution companies. The ratings of IPALCO, IP&L, CILCORP and CILCO are as follows: Indianapolis Power & Light Co. (IP&L) --First mortgage bonds and secured pollution control revenue bonds downgraded to 'BBB' from 'BBB+'; --Senior unsecured debt downgraded to 'BBB-' from 'BBB'; --Preferred stock downgraded to 'BBB-' from 'BBB'; --Commercial paper remains unchanged at 'F2'; --Rating Outlook Stable, formerly on Rating Watch Negative. IPALCO --Senior unsecured debt downgraded to 'BBB-' from 'BBB'; --Commercial Paper remains unchanged at 'F2'; --Rating Outlook Stable, formerly on Rating Watch Negative. Central Illinois Light Co. --First mortgage bonds and secured pollution control revenue bonds downgraded to 'BBB' from 'BBB+'; --Senior unsecured debt to 'BBB-' from 'BBB'; --Preferred stock downgraded to 'BBB-' from 'BBB'; --Commercial paper remains unchanged at 'F2'; --Rating Watch Evolving to reflect pending sale by AES, formerly on Rating Watch Negative; CILCORP --Senior unsecured debt downgraded to 'BBB-' from 'BBB'; --Rating Watch Evolving to reflect pending sale by AES, formerly on Rating Watch Negative. For further information, please refer to Fitch's report on AES Corp., dated Dec. 20, 2001 and available on Fitch Ratings' web site at 'www.fitchratings.com'. |
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