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Rating Action:

MOODY'S CONFIRMS RATINGS OF WASHINGTON WATER POWER COMPANY FOLLOWING RESTRUCTURING ANNOUNCEMENT (SR. SEC. AT A3)

17 Aug 1998
MOODY'S CONFIRMS RATINGS OF WASHINGTON WATER POWER COMPANY FOLLOWING RESTRUCTURING ANNOUNCEMENT (SR. SEC. AT A3) New York, 08-17-98 -- Moody's Investors Service confirmed the securities ratings of Washington Water Power Company (Sr. Secured at A3) and maintained its stable rating outlook, following the announcement of the company's dividend restructuring plan. The plan will result in a 61% reduction in the company's common stock dividend from $1.24 per share to 48 cents per share, effective with the dividend expected to be paid on December 15, 1998. The planned reduction has no effect on any of the company's outstanding issues of preferred stock. In related actions, the company's board of directors also approved a name change to Avista Corporation, effective January 1, 1999, and, subject to regulatory approvals, the development of an exchange offer to be made available to the company's existing common stock investors.
Ratings confirmed are Washington Water Power Company's secured medium-term notes at A3; unsecured medium-term notes, pollution control revenue bonds, and issuer rating at Baa1; junior subordinated debt at Baa2; preferred stock at "baa2"; and shelf registration for unsecured debt or junior subordinated debt at (P)Baa1/(P)Baa2. Also confirmed are ratings of outstanding capital securities issued by Washington Water Power Capital I and II at "baa1" and shelf registration of capital securities and junior subordinated debt of Washington Water Power Capital III at (P) "baa1"/(P)Baa2.
Assuming the exchange offer is approved by regulators, the dividend reduction will initially provide Washington Water Power with approximately $30 million of additional cash flow on an annualized basis, which should help fund the company's increasingly aggressive plans to grow all areas of its business through both acquisitions and strategic alliances. Under the exchange program, the company would offer to exchange up to 20 million shares of its common stock (about 35% of the company's outstanding common shares) for an equal number of mandatorily convertible preferred shares, each of which would pay an annual dividend of $1.24 per share for a period of about three years. At the end of three years, the mandatorily convertible preferred shares would convert to common stock on a one-for-one basis, potentially providing for another $10 million of incremental cash flow annually. However, it is also worth noting that a company option for earlier conversion could result in an exchange ratio of less than one-for-one, which would further enhance the potential benefits to cash flow. Unless the company receives the necessary regulatory approvals by October 23, 1998, the exchange offer will not be made. Nevertheless, the dividend reduction would still occur.
Although the initial plans are for Washington Water Power to remain a division of Avista Corporation effective January 1, 1999, management does not currently rule out the possibility of forming a holding company structure in the future. Under that type of corporate structure, investors in the utility's fixed income securities would be better insulated from the higher risks associated with investments in diversified businesses, especially if state regulators place a limit on the amount a utility subsidiary can dividend to the parent company and/or set a minimum common equity ratio that the utility subsidiary must maintain.
Notwithstanding Washington Water Power Company's more aggressive plans to expand the size and scope of its existing operations and to branch out into other businesses as well, Moody's expects that the company's penchant for discipline in its business transactions will allow its future financial performance to support its current rating. Moody's will carefully consider the size and nature of the businesses that the company may invest in as it pursues its current business strategy. An unexpected divergence from management's past tendency to conservatively finance its investments could pressure the rating.
Washington Water Power Company is an energy services business, which operates as an electric and gas utility and has subsidiary operations in other non-regulated and non-energy businesses. Its headquarters are in Spokane, WA.

No Related Data.
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