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IOWA-ILLINOIS G&E $65 MILLION FIRST MORTGAGE SHELF RATED 'AA' BY FITCH -- FITCH FINANCIAL WIRE --

 NEW YORK, March 19 /PRNewswire/ -- Iowa-Illinois Gas and Electric Co.'s (IWG) $65 million shelf registration of first mortgage bonds is rated 'AA' by Fitch. The company's outstanding 'AA' first mortgage bonds, 'AA-' preferred stock, and 'A+' preference stock are affirmed. The credit trend is improving.
 IWG's earnings, fixed charge coverage, and cash flow protection have been weak for the rating category over the past several years. This weakness reflected substantial increases in nuclear operating and maintenance costs, unseasonably cool weather, slow sales growth due to demand side management programs, and stepped-up construction outlays. Moreover, there had been no increase in the company's base electric and gas rates in ten years in either Iowa or Illinois. Fitch expects bondholder protection measures to return to levels supportive of current ratings over the next several years, reflecting expected stabilization in nuclear operating and maintenance costs, lower construction outlays, and rate relief granted late in 1992 in Iowa and anticipated in Illinois around mid-year 1993.
 Management is committed to maintaining a strong balance sheet and sold $59 million of new common stock in July 1992. Common equity exceeds 50% of capitalization, adjusted to exclude non-recourse debt issued by a non-regulated subsidiary. Construction expenditures should peak at $85 million in 1994 and then decline to under $60 million annually thereafter. Internal cash generation is expected to exceed 100 percent of capital outlays after 1994, with pretax interest coverage returning to a range of 3.7-4.0 times beginning in 1993.
 IWG has no new generation planned over the foreseeable future. Sales growth, moreover, will suffer from the shutdown of an important industrial customer and successful energy conservation programs. Thus, electric demand is anticipated to grow only moderately, around 1.6 percent annually. As to regulation, the Iowa Utilities Board is well regarded and forward thinking on critical issues such as nuclear costs, demand side management recovery, and incentive ratemaking. Although the Illinois Commerce Commission is currently in transition, its staff is recommending a rate increase for 1993. IWG has no material Clean Air Act problems.
 It is critical that IWG contain all operating costs, including nuclear O&M, given the low projected sales growth rate for electric (1.6 percent) and gas (1.2 percent). The company anticipates retail wheeling in its electric territory and must realign retail tariffs to help keep its sizable large commercial and industrial load. While IWG's electric rates are reasonable for the region, it must successfully compete in retaining and adding large volume customers. Additional concerns include the need for higher rates at a time when competitive factors call for maximum flexibility and concessions, the slow growth environment, and stress related to a comparatively high dividend payout.
 -0- 3/19/93
 /CONTACT: John Watt of Fitch, 212-908-0523/
 (IWG)


CO: Iowa-Illinois Gas and Electric Co. ST: Iowa IN: UTI SU: RTG

KD -- NY067 -- 8050 03/19/93 16:59 EST
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Publication:PR Newswire
Date:Mar 19, 1993
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