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Rating Action:

MOODY'S ASSIGNS Baa2 ISSUER RATING TO DUKE ENERGY CORPORATION; UPGRADES DUKE POWER LLC, DUKE CAPITAL LLC, AND TEXAS EASTERN; POSITIVE RATING OUTLOOK FOR DUKE ENERGY AND SEVERAL SUBSIDIARIES

06 Apr 2006
MOODY'S ASSIGNS Baa2 ISSUER RATING TO DUKE ENERGY CORPORATION; UPGRADES DUKE POWER LLC, DUKE CAPITAL LLC, AND TEXAS EASTERN; POSITIVE RATING OUTLOOK FOR DUKE ENERGY AND SEVERAL SUBSIDIARIES

Approximately $21 Billion of Debt and Preferred Securities Affected

New York, April 06, 2006 -- Moody's Investors Service assigned a Baa2 Issuer Rating to Duke Energy Corporation (Duke Energy), the newly formed holding company as the parent company for the former Duke Energy and Cinergy Corporation, which combined in a merger on April 3, 2006. Moody's also upgraded the long-term debt ratings of subsidiaries Duke Power LLC (Duke Power: senior unsecured debt to A3 from Baa1); Duke Capital LLC (Duke Capital: senior unsecured to Baa2 from Baa3) and Texas Eastern Transmission LP (Texas Eastern: senior unsecured to Baa1 from Baa2). The short term rating for commercial paper for Duke Power was confirmed at Prime-2. The short term rating for commercial paper for Duke Capital was affirmed at Prime-3. This concludes the review for possible upgrade that was initiated on March 29, 2006. The rating outlook is positive for Duke Energy and Duke Power. The rating outlook is stable for Duke Capital and Texas Eastern.

Moody's affirmed the ratings for Cinergy Corporation (Cinergy: Baa2 senior unsecured), Cincinnati Gas and Electric (CG&E: Baa1 senior unsecured), Union Light, Heat and Power (ULH&P: Baa1 senior unsecured) and PSI Energy (PSI: Baa1 senior unsecured), which were not under review. The rating outlook was changed to positive from stable for Cinergy, CGE, and ULH&P. The rating outlook remains stable for PSI.

Duke Energy's Baa2 Issuer Rating reflects the relative stability and predictability of its rate-regulated electric and natural gas operations, which represent approximately 80% to 85% of consolidated revenues, earnings, cash flows and assets. Duke Energy is expected to produce cash flow coverage metrics, including a ratio of funds from operations (FFO) to adjusted total debt around 20% and a ratio of FFO to interest of approximately 4.0x, which are consistent with a Baa2 rating for a utility company in the medium risk category, as specified in Moody's global rating methodology, for companies whose operations are predominantly electric utility in nature.

The rating upgrade for Duke Power reflects the substantial reduction in its business and operating risk profile as a result of the distribution of its ownership interests in Duke Capital to its new parent holding company, Duke Energy. In addition, the rating upgrade reflects our expectations that earnings and cash flows will produce financial credit metrics that are more commensurate with A3 rated vertically integrated utilities with supportive regulation. In accordance with the global rating methodology, these credit metrics expected for Duke Power over the next several years include a ratio of FFO to adjusted total debt of over 25% and a ratio of FFO to interest of approximately 6x.

The rating upgrade for Duke Capital reflects the substantial reduction in its business and operating risk profile as a result of its ownership restructuring of Duke Energy Field Services (DEFS) and its divestiture of its Duke Energy North America merchant generation assets and commodity trading book. As a result of these restructuring initiatives, approximately 70% to 75% of Duke Capital's revenues, earnings, cash flows and assets are expected to be derived from rate-regulated natural gas transmission and distribution activities. The rating upgrade also reflects the improvements expected in Duke Capital's financial metrics, including a ratio of FFO to adjusted total debt of approaching 20% and FFO interest approaching 4x. The rating upgrade for Texas Eastern reflects the rating upgrade of its parent company, Duke Capital.

The positive rating outlook for Duke Energy, Duke Power, Cinergy, CG&E and ULH&P reflects the potential for improvements in financial performance over the next several years as a result of merger synergies, particularly in the area of reduced costs. The electric utility operating companies have agreed to front-end load a portion of the expected merger synergies to customers, which adds to merger integration risks over the near-term but also anticipates stronger financial performance over the longer-term.

The stable rating outlook for Duke Capital and Texas Eastern considers that the expected benefits of the merger affect these entities less significantly, since Cinergy had no similar operations. The stable rating outlook for PSI Energy reflects financial ratios that are not as strong as those of CG&E and ULH&P.

Duke Energy is a diversified electric and natural gas holding company, headquartered in Charlotte, North Carolina.

Upgrades:

..Issuer: Duke Capital, LLC

....Junior Subordinated Shelf, Upgraded to (P)Baa3 from (P)Ba1

....Senior Unsecured Bank Credit Facility, Upgraded to Baa2 from Baa3

....Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to Baa2 from Baa3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

....Senior Unsecured Shelf, Upgraded to (P)Baa2 from (P)Baa3

..Issuer: Duke Power LLC

....Issuer Rating, Upgraded to A3 from Baa1

....Junior Subordinated Shelf, Upgraded to (P)Baa1 from (P)Baa2

....Preferred Stock, Upgraded to Baa2 from Baa3

....Preferred Stock Shelf, Upgraded to (P)Baa2 from (P)Baa3

....Senior Secured First Mortgage Bonds, Upgraded to A2 from A3

....Senior Secured Medium-Term Note Program, Upgraded to A2 from A3

....Senior Secured Regular Bond/Debenture, Upgraded to A2 from A3

....Senior Secured Shelf, Upgraded to (P)A2 from (P)A3

....Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to A3 from Baa1

....Senior Unsecured Regular Bond/Debenture, Upgraded to A3 from Baa1

....Senior Unsecured Shelf, Upgraded to (P)A3 from (P)Baa1

..Issuer: Texas Eastern Transmission L.P.

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

....Senior Unsecured Shelf, Upgraded to (P)Baa1 from (P)Baa2

Assignments:

..Issuer: Duke Energy Corporation

....Issuer Rating, Assigned Baa2

Outlook Actions:

..Issuer: Cincinnati Gas & Electric Company (The)

....Outlook, Changed To Positive From Stable

..Issuer: Cinergy Corp.

....Outlook, Changed To Positive From Stable

..Issuer: Duke Capital, LLC

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Duke Power LLC

....Outlook, Changed To Positive From Rating Under Review

..Issuer: Texas Eastern Transmission L.P.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Union Light, Heat & Power Company (The)

....Outlook, Changed To Positive From Stable

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
James Hempstead
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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