MOODY'S CONFIRMS CREDIT RATINGS OF PORTLAND GENERAL ELECTRIC COMPANY (SR. SEC. AT A2) AND PORTLAND GENERAL CORP. (COUNTERPARTY RATING AT Baa1)
New York, 12/18/1996 -- Moody's Investors Service confirmed the credit ratings of Portland General Electric Company (PGE) and the counterparty rating of its parent, Portland General Corporation (PGC). In the event of the merger with Enron Corp., PGC's counterparty rating would be withdrawn because it would cease to exist as a separate legal entity. Moody's simultaneously withdrew its Baa1 rating of PGC's unsecured medium-term notes, which were redeemed during the review period. The outlook for the confirmed ratings is stable. These actions conclude the review for possible downgrade of PGC's and PGE's credit ratings that began on July 22, 1996.
The rating confirmations reflect Moody's expectation that PGE will remain financially strong whether it continues to operate under its current legal structure or as a subsidiary of Enron, if the agreement to merge PGC into Enron Corp. is consummated. Moody's notes, however, that the long-term security ratings of Enron Corp. and its subsidiaries, except Enron Oil & Gas, remain on review for possible upgrade, pending further assessment of Enron's risk management strategy as relates to the planned merger, as well as the progress toward obtaining the regulatory approvals necessary to close the transaction. Final decisions on state and federal regulatory approvals are expected during the latter part of first quarter 1997.
Ratings confirmed are: Portland General Corporation's Baa1 Counterparty rating, as well as Portland General Electric Company's Prime 1-rated commercial paper; A2-rated first mortgage bonds and secured medium-term notes; A3-rated unsecured pollution control revenue bonds and counterparty rating; Baa1-rated junior subordinated deferrable interest debentures; "a3"-rated preferred stock; and (P)A2/(P)A3/(P)Baa1-rated global shelf registration for senior secured debt/unsecured debt/junior subordinated debt.
Rating withdrawn is Portland General Corporation's Baa1-rated unsecured MTNs.
PGE's earnings remain strong in 1996, due to cost-saving initiatives and favorable secondary power market conditions earlier in the year. Achieving earnings growth beyond 1996 will be a challenge due to an overall 7% price reduction associated with a November 1996 rate settlement agreement and previously approved pricing adjustments. Nevertheless, Moody's expects that PGE will largely avoid pressure on its earnings and cash flow by strictly controlling its O&M expenses, by continuing to capitalize on favorable pricing in the secondary power market, and by increasing retail sales across all customer classes as the regional economy continues to expand. Thus, we expect protection for fixed income investors to remain well within the range for A2-rated investor-owned utilities.
Moody's believes PGE is in a good competitive position within its region, despite ongoing recovery of its remaining Trojan investment. The aforementioned pricing reduction strengthens demand for the utility's energy and enhances its ability to take advantage of wholesale marketing opportunities in the western United States. In addition, PGE will undoubtedly pursue retail marketing opportunities outside its service territory, particularly in California where recently passed legislation paves the way for such activity.
If the merger with Enron is consummated, Moody's considers it unlikely that Enron would depend excessively on cash flows from PGE to fund its other business investments. Furthermore, certain regulations limit Enron's access to funds from PGE, including required maintenance of a minimum common equity ratio of 36% and prior approvals to conduct affiliate transactions. Indeed, we believe such protections could be strengthened as part of the negotiating process to obtain the Oregon Public Utility Commission's approval of the merger plans.
PGE's parent, PGC, derives its credit strength from the cash flow of the electric utility, which accounts for essentially all of PGC's assets, revenues, and net income. In the event of the merger with Enron, PGC would merge into Enron and cease to exist as a separate legal entity.
Portland General Corporation and its subsidiary, Portland General Electric Company, are headquartered in Portland, Oregon. Enron is headquartered in Houston, Texas.
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