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08 Oct 2001
MOODY'S DOWNGRADES CREDIT RATINGS OF AVISTA CORPORATION (SR.SEC. TO Baa3)
Approximately $1.3 Billion of Debt Securities Affected.
New York, October 08, 2001 -- Moody's Investors Service downgraded the ratings of Avista Corporation
(Sr. Secured to Baa3). The downgrade of Avista's ratings
is in response to concerns about an expected longer period for financial
recovery than had originally been anticipated, as well as lingering
regulatory uncertainties in the state of Washington. The outlook
for Avista's ratings is negative, reflecting the still considerable
challenges that the company must overcome to restore earnings, cash
flow, and liquidity to healthier levels.
Ratings downgraded include Avista Corporation's senior secured debt to
Baa3 from Baa1; its senior unsecured debt and issuer ratings to Ba1
from Baa2; its preferred stock rating to Ba3 from Ba1; and its
shelf registration ratings for prospective issuance of unsecured debt
to (P)Ba1 from (P)Baa2.
Ratings also downgraded include the preferred capital securities of Avista
Corp. Capital I and Avista Corp. Capital II to Ba2 from
Baa3, as well as the shelf registration rating for prospective issuance
of preferred capital securities or subordinated debt of Avista Corp.
Capital III to (P)Ba2/(P)Ba2 from (P)Baa3/(P)Baa3, respectively.
Moody's has downgraded these ratings despite the Washington Utilities
and Transportation Commission's (WUTC) recent approval of a 25%
temporary electric rate surcharge for Avista, covering the period
from October 1, 2001 to December 31, 2002. The surcharge
is less than the 36.9% requested, is in effect for
15 months versus the 27 months requested, and is subject to refund,
pending a prudence determination expected to be part of the general rate
case that Avista is mandated to file by December 1, 2001.
Also, of particular concern to Moody's is the fact that the existing
energy cost deferral mechanism is being eliminated effective December
31, 2001. In taking this action, Moody's has factored
in the expectation that Avista will receive a ruling relating to its request
for a 14.7% electric surcharge in its substantially smaller
Idaho jurisdiction within the next several days. Moody's notes
that Idaho regulators have been demonstrating solid support for utilities
in recent decisions rendered and that Idaho regulation has in place a
tested deferral mechanism, which serves to provide a high degree
of certainty around the eventual recovery of the deferred power costs.
The recent WUTC order signals some support of Avista's need to address
the sizable build up of energy cost deferrals due to a confluence of circumstances,
including the worst drought conditions in over 70 years, volatile
pricing for power in the wholesale market, and other changing market
conditions (e.g.; price caps imposed by the Federal
Energy Regulatory Commission). However, the order also creates
a longer period for financial recovery than would have been the case if
the WUTC order approved Avista's request for interim rate relief entirely
as filed earlier this year. Moody's remains concerned that Avista
is still left with ongoing challenges, following the recent WUTC
order. Therefore, the downgrading of Avista's credit ratings
anticipates that the utility will still need to cope with ongoing,
albeit less severe, cash flow pressures because rates will still
not completely cover power supply costs and the existing energy cost deferral
mechanism is being eliminated.
Against the backdrop of the recent WUTC order, Moody's will continue
to assess Avista's ability to finance construction of the Coyote Springs
II generation plant, its ability to withstand the expected delay
in a planned common equity offering due to the current market environment,
and whether the utility's other strategies to reduce costs and rationalize
nonregulated investments can be implemented successfully. Although
Avista was able to add to its liquidity in the face of challenging circumstances,
Moody's considers success in regard to the aforementioned matters as integral
to improving earnings, cash flow, and liquidity to more healthy
levels. In addition, a favorable outcome of the general rate
filing to be made by December 1, 2001 would help stabilize the current
negative rating outlook. This would be especially so if the outcome
implements a power cost adjustment mechanism to create more certainty
surrounding recovery of Avista's power supply costs incurred to serve
its customers in the Washington jurisdiction.
Avista Corporation is an energy company with utility and other subsidiary
operations throughout North America. Its headquarters are located
in Spokane, Washington.
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
Kevin G. Rose
Vice President - Senior Analyst
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
No Related Data.
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