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DCR UPGRADES PACIFIC ENTERPRISES AND SUBSIDIARY SOUTHERN CALIFORNIA GAS COMPANY

CHICAGO, March 8 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has raised the ratings on the long-term securities of Pacific Enterprises (PE) (NYSE: PET) and its primary subsidiary Southern California Gas Company (SoCal). PE's preferred stock rating is raised to 'A' (Single-A) from 'BBB+' (Triple-B-Plus). SoCal's first mortgage bonds have been upgraded to 'AA-' (Double-A-Minus) from 'A+' (Single-A- Plus), and unsecured medium-term notes, debt and preferred stock to 'A+' (Single-A-Plus) from 'A' (Single-A). Approximately $1.5 billion of securities are affected.

The rating upgrades recognize healthy financial performance driven by the strong cash generating ability and solid operations of core business SoCal. SoCal's operating cash flows benefit from savings from organizational cost reduction and productivity programs. Internal funds at SoCal have and will cover a very manageable construction program plus some debt maturities while also permitting a healthy dividend to parent PE. SoCal's demonstrated ability to generate strong earnings and cash flows is expected to support maintenance of high-quality bondholder protection measures and a reasonable capital structure.

Cash dividends upstreamed from SoCal, after reflecting the authorized capital structure and operational requirements, have contributed to PE's large cash position. Part of the excess is being used to refund approximately one-half of more expensive outstanding preferred stock at both PE and SoCal. Cash is expected to remain strong relative to PE's limited payments for overhead, outstanding debt service ($130 million of ESOP debt), preferred stock and the common dividend. PE has the financial flexibility to support the potential for disciplined, moderate investment in energy businesses outside of SoCal without incurring any new debt. The consolidated credit profile is nevertheless expected to remain dominated by SoCal.

SoCal's qualitative outlook is also good. Efforts have been made to improve its gas supply and transportation position and competitiveness in more price-sensitive noncore markets as well as prepare for the movement toward greater incentive-based regulation. Basic strengths include reliance on more stable, saturated core markets for the majority of margin, special ratemaking features that protect SoCal's core revenues from the effects of volumetric swings due to demand and weather, and a flexible rate design in more competitively exposed markets. In its earnings-sensitive noncore transportation markets, SoCal has been successful in maintaining required throughput volumes and its cost structure is expected to improve such that SoCal will become more effective in preserving load against potential bypass.
 -0- 3/8/96


/CONTACT: Thomas M. Carroll, CFA, CPA or Colleen M. Mulcahy of Duff & Phelps Credit Rating Co. Public Relations, 312-368-3140 or 312-368-3113/

(PET)

CO: Duff & Phelps Credit Rating Co.; Pacific Enterprises; Southern

California Gas Company ST: New York IN: SU: RTG

DP -- NEF009 -- 1554 03/08/96 11:16 EST
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Publication:PR Newswire
Date:Mar 8, 1996
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