MOODY'S CONFIRMS THE RATINGS OF PACIFICORP AND ITS SUBSIDIARIES; RATINGS REMOVED FROM REVIEW FOR DOWNGRADE
New York, 05-01-98 -- Moody's Investors Service confirmed the ratings of PacifiCorp and all of its subsidiaries and removed the ratings from review for possible downgrade following yesterday's announcement to terminate its acquisition plans of The Energy Group (TEG). The ratings were initially placed on review for downgrade on June 13, 1997 after PacifiCorp announced plans to acquire TEG. PacifiCorp subsequently increased its offer on two separate occasions to the most recent 820 pence per share offer which was ultimately withdrawn.
Ratings confirmed and removed from review for possible downgrade are:
PacifiCorp -- A2 senior secured debt; A3 senior unsecured debt and counterparty rating; Baa1 junior subordinated debt; "a3" preferred stock and trust preferred stock; (P)A2/(P)A3/(P)Baa1/(P)"a3" global shelf registration; and Prime-1 commercial paper.
Utah Power & Light Co. (Backed by PacifiCorp) -- A2 senior secured; "a3" preferred stock.
PacifiCorp Group Holdings Company (PGH) (formerly PacifiCorp Holdings, Inc.)-- Baa2 senior unsecured debt and Prime-2 commercial paper.
PacifiCorp Australia, LLC -- Baa1 Australian bank facility.
PacifiCorp Financial Services -- Baa3 senior medium-term notes.
Moody's also confirmed the commercial paper rating of PacifiCorp Australia, LLC at Prime -2. This rating was not on review for downgrade.
The direction of the PacifiCorp and its subsidiaries' ratings depend in large part on the credit quality and strategic fit of the company's future acquisitions. PacifiCorp, through its PGH subsidiary, currently has in excess of $1.3 billion in cash raised from the sale of certain businesses to fund the now terminated TEG acquisition. Although this level of cash provides abundant liquidity for PacifiCorp and its subsidiaries, Moody's views this level of cash to be a temporary resource. At a minimum, the company will likely repurchase common stock. Longer term, PacifiCorp needs to replace the stable earnings stream generated by Pacific Telecom through one or more acquisitions.
Although no specific acquisition is likely under consideration, as management's attention has been focused on completing the TEG transaction, any acquisition or series of acquisitions will likely be of significant scope and size in order to replace the earnings generated by the businesses sold. Although unsuccessful with TEG, PacifiCorp's strategy to be a global energy provider remains unchanged so future acquisitions will likely be in the energy trading and risk management, power generation, and distribution segments of the energy business.
Although Moody's expects management to utilize leverage in prospective transactions, Moody's does not believe that the extremely high leverage contemplated in the TEG acquisition is the model that will surface in future PacifiCorp acquisitions. For one, the TEG assets fit extremely well into PacifiCorp's global strategy and the company is not likely to find a similar fit under one organization. Moreover, management has publicly stated its commitment to maintaining credit quality throughout the PacifiCorp organization and has demonstrated an investment discipline by withdrawing its TEG bid, even though the acquisition fit uniquely well into PacifiCorp's business strategy.
PacifiCorp is an electric utility, headquartered in Portland, Oregon. PGH is a diversified, Portland-based holding company whose interests include an Australian-based electricity distribution company and energy trading and risk management companies. PacifiCorp Australia LLC holds PacifiCorp's investment in Powercor, the largest of Victoria's electric distribution businesses, and its ownership interest in a coal-fired power plant. Its headquarters are in Melbourne, Victoria. PacifiCorp Financial Services, also based out of Portland, Oregon, is another of PGH's subsidiaries, which holds tax-advantaged investments in aircraft leases and affordable housing.
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