MOODY'S CONFIRMS SENIOR SECURED RATINGS OF 51 ELECTRIC, GAS, AND WATER UTILITIES
New York, October 15, 1997 -- Moody's Investors Service has confirmed the senior secured debt issues of 51 electric, water, and gas utilities in response to investor concerns regarding the ratings distinctions between senior secured and senior unsecured credits of the same issuers.
Moody's existing ratings on these issues adequately reflect their likely recovery values relative to the companies' other debt obligations. They also reflect that for investment-grade issuers the probability of default is remote. Therefore, Moody's believes a distinction of more than one refined rating category between senior secured and senior unsecured is generally an unrealistic indicator to investors of underlying credit risk.
For below-investment-grade credits, that is Ba1 or lower, Moody's gives greater weight to expected recovery that is commensurate with a higher probability of default. For these issuers, the ratings distinction between secured and unsecured debt is wider.
The likelihood of default, as demonstrated in Moody's annual default study, increases as the credit quality of the issuer declines. For example, the one-year default rates for the period 1970-1996 in the Baa3 category was 0.4 %, while it was 13.7% in the B3 category. Moody's default research includes the credit histories of over 14,000 US and non-US corporate debt issuers over 77 years, from 1920-1997.
Changes stemming from deregulation of the electric and gas sectors are currently reshaping the two industries. Moody's believes that the differentiated business strategies of the electric and gas utilities will be the ultimate determinants of their individual credit quality. Yet, at this time the signal to investors should be one of caution rather than optimism both in evaluating overall credit risk and in valuing the assets securing first mortgage bonds and other senior secured debt obligations.
Moody's has confirmed the following ratings:
Appalachian Power Co. A3
Arizona Public Service Co. Baa1
Baltimore Gas & Electric Co. A1
Black Hills Corp. A1
Central Louisiana Electric Co. A2
Consumers Energy Co. Baa3
Detroit Edison Co. A3
Duke Energy Co. Aa3
Entergy Arkansas Inc. Baa2
Entergy Mississippi Inc. Baa2
Green Mountain Power Corp. Baa2
Gulf Power Co. A1
Hawaiian Electric Co., Inc. A3
Idaho Power Co. A2
Indiana Michigan Power Co. Baa1
Kentucky Power Co. Baa1
Kentucky Utilities Co. Aa2
Massachusetts Electric Co. A2
MidAmercian Energy Co. A2
Minnesota Power & Light Co. Baa1
Montana Power Co. Baa1
Narragansett Electric Co. A2
Nevada Power Co. Baa2
Niagara Mohawk Power Corp. Ba3
Northern Indiana Public Service Co. A2
Northern States Power Company (Minnesota) Aa3
Northern States Power Company (Wisconsin) Aa3
Ohio Edison Co. Baa2
Oklahoma Gas & Electric Co. Aa3
Pacific Gas & Electric Co. A1
Public Service Co. of Colorado A3
Public Service Co. of Oklahoma Aa3
Savannah Electric & Power Co. A1
Southwestern Electric Power Co. Aa2
Texas-New Mexico Power Co. Ba2
Tucson Electric Power Co. Ba3
Colonial Gas Co. Baa1
New Jersey Natural Gas Co. A2
PG Energy Baa3
South Jersey Gas Co. Baa1
Southern Connecticut Gas Co. A2
Indianapolis Water Co. A2
Middlesex Water Company A2
New Jersey-American Water Co. A3
Pennsylvania -American Water Co. A3
The A2 senior secured rating of IES Utilities Inc. continues under review for upgrade, as does the Ba1 rating of Long Island Lighting Co. The A3 rating of Western Resources, the A3 rating of Pennsylvania Electric Co., and the Baa1 rating of both Jersey Central Power & Light Co. and Metropolitan Edison Co. are currently under review for downgrade.
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