MOODY'S CONFIRMS CREDIT RATINGS OF NORTHWESTERN CORPORATION FOLLOWING ANNOUNCED STRATEGIC BUSINESS ALLIANCE (SR. SEC. AT A1)
Moody's Investors Service confirmed the securities ratings of NorthWestern Corporation with a stable outlook, following the company's announcement today that its Expanets division had acquired the domestic small and mid-sized business sales organization from Lucent Technologies' Enterprise Networks Group. The rating confirmation reflects Moody's view that the acquisition is currently credit neutral to NorthWestern. This view takes into account the moderate impact that we believe the transaction has on NorthWestern's balance sheet and the considerable growth opportunities it presents, which helps balance the company's higher consolidated business risk profile due to growing investments in diversified businesses. The resulting strategic business alliance between Lucent and Expanets, which is NorthWestern's networked communications solutions and service division, is viewed by Moody's to be totally consistent with the company's strategic plan that has been unfolding for several years now.
NorthWestern Corporation ratings confirmed are as follows:
senior secured debt at A1; senior unsecured debt and issuer ratings at A2; subordinated debt at A3; shelf registration for prospective issuance of senior secured debt, senior unsecured debt, subordinated debt, preferred stock, and preference stock at (P)A1/(P)A2/(P)A3/(P) "a2"/(P) "a3", respectively; and short-term debt rating at Prime-1.
Other ratings confirmed include: trust preferred securities of NWPS Capital Financing I and NorthWestern Capital Financing I, which are special purpose finance subsidiaries of NorthWestern Corporation, at "a2"; as well as the ratings of the shelf registrations for prospective issuance of trust preferred securities of NorthWestern Capital Financing I, NorthWestern Capital Financing II, NorthWestern Capital Financing III, and NorthWestern Capital Financing IV, all of which are special purpose finance subsidiaries of NorthWestern Corporation, at (P) "a2".
Since 1995, NorthWestern Corporation has significantly expanded its operations to include retail propane distribution, as well as other businesses that provide heating, ventilation, air conditioning (HVAC), plumbing, and telecommunications and data services. Although these investments carry considerable business risks, the risks they pose are tempered by NorthWestern's less-risky, regulated electric and gas utility operations, which continue to enjoy a favorable competitive position relative to its peers and provide a stable, predictable cash stream.
In assessing NorthWestern Corporation's credit quality, it is important to note that its management team has followed a prudent funding strategy for its diversified investments. In addition to periodically issuing common equity, much of the debt added to fund diversified investments resides at the subsidiary levels and has terms and conditions that make the debt nonrecourse to NorthWestern Corporation. After adjusting for the nonrecourse debt, the company's cash flow, which is particularly prone to variability depending on weather, provides comfortable coverage of interest and other fixed charges, and its balance sheet is flexibile enough to respond to growth opportunities or unexpected events. However, cash flow coverages and capitalization ratios are currently less robust than similarly rated peers.
Notwithstanding the current level of NorthWestern's adjusted financial ratios, Moody's current ratings of NorthWestern Corporation's securities anticipate that management will continue to demonstrate prudent financing of growth initiatives. Included among this would be a willingness to issue common stock and/or reduce debt as necessary to shore up the balance sheet, and ongoing evaluation of initial public offering opportunities for all of its diversified businesses as a means by which it can maximize the value of its investments, while also appropriately balancing the interests of both its bondholders and shareholders. Any material divergence from management's propensity for prudent financing of its growth initiatives would add pressure to NorthWestern's credit ratings.
NorthWestern Corporation, headquartered in Sioux Falls, South Dakota, is a diversified service and solutions company with investments in an electric and gas utility, retail propane distribution and energy services, as well as HVAC, plumbing, and telecommunications and data services.
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