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SOUTHERN INDIANA G&E 'AA' FIRST MORTGAGE BONDS AFFIRMED BY FITCH -- FITCH FINANCIAL WIRE --

 NEW YORK, Jan. 5 /PRNewswire/ -- Southern Indiana Gas & Electric Co.'s (SIGECO) AA' first mortgage bonds are affirmed and its preferred stock is lowered to AA-' from AA' by Fitch. The credit trend is stable. The ratings reflect the company's solid credit fundamentals, low cost coal-based operations and supportive regulatory treatment for its relatively large Clean Air Act (CAA) compliance costs. The lower preferred stock rating reflects the increased use of preferred stock in coming years to finance its growing construction program.
 Although SIGECO has no baseload construction planned until early in the next century, CAA compliance will significantly increase capital expenditures over the next five years. SIGECO's gross construction expenditures for this period are expected to total $321 million, a 77 percent increase over 1987-1991 gross construction expenditures of $181 million. About 80 percent or $114 million of the higher capital spending is acid rain related.
 Regulatory and statutory support for recovery of acid rain expenditures is favorable in Indiana. Existing Indiana law allows for the inclusion of environmental construction work in progress in rate base and also permits utilities to seek pre-approval of their compliance plan.
 Regulators approved SIGECO's CAA compliance strategy on Oct. 14. One scrubber will be installed at two units of the Culley plant, with expenditures capped at $107 million. This strategy is expected to result in rate increases of 5-9 percent depending on the value of over- compliance trading allowances and other variables. The rate increases will be phased in over a three-year period beginning in 1993.
 Given the increases in construction and financing, as well as the rate relief timing, credit quality measures are expected to weaken in 1993 and 1994 before recovering gradually to levels appropriate for current ratings. The utility's coverage ratio is estimated at about 3.9 times(x) in 1992, relatively unchanged from 1991. This ratio is expected to fall to about 3.7x in 1993 and bottom out at 3.5x in 1994 before recovering to about 3.7x in 1995.
 Internally generated funds will average 68 percent of construction expenditures from 1992 to 1994, down from 152 percent the previous three years. Assuming continued constructive rate relief, these funds should average over 100 percent in 1995-1996.
 Preferred stock sales and earnings retention should help lower debt leverage from 48.3 percent at June 30, to around 45 percent by 1996. However, the preferred stock ratio is expected to increase from 3.5 percent at June 30 to about 8.0 percent by 1996.
 -0- 1/5/93
 /CONTACT: Ed King of Fitch, 212-908-0574/
 (SIG)


CO: Southern Indiana Gas & Electric Co. ST: Indiana IN: UTI SU: RTG

CK -- NY043 -- 1699 01/05/93 11:37 EST
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Publication:PR Newswire
Date:Jan 5, 1993
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