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11 Feb 2005
MOODY'S DOWNGRADES PROGRESS ENERGY FLORIDA (Sr. Sec. to A2 from A1), STABLE OUTLOOK; AFFIRMS PROGRESS ENERGY CAROLINAS (A3 Sr. Sec.), STABLE OUTLOOK; AFFIRMS PROGRESS ENERGY, INC. (Baa2 Sr. Unsec.), NEGATIVE OUTLOOK
Approximately $2.7 Billion of Debt Securities Downgraded.
New York, February 11, 2005 -- Moody's Investors Service downgraded Progress Energy Florida's
senior secured debt to A2 from A1; senior unsecured debt and Issuer
Rating to A3 from A2; preferred stock to Baa2 from Baa1; and
short term rating for commercial paper to Prime-2 from Prime-1.
Moody's downgraded Progress Capital Holdings, Inc.'s
senior unsecured debt to Baa1 from A3, the trust preferred securities
of FPC Capital Trust I to Baa2 from Baa1, and the subordinated debt
of Florida Progress Funding Corporation to Baa2 from Baa1. This
action concludes the review of these ratings for possible downgrade.
The rating outlook is stable for Progress Energy Florida, Progress
Capital Holdings, FPC Capital Trust I, and Florida Progress
Moody's also affirmed Progress Energy Carolinas' ratings,
including its A3 senior secured debt; Baa1 senior unsecured debt
and Issuer Rating; Baa2 subordinate debt; Baa3 preferred stock;
and the Prime-2 short term rating for commercial paper.
The rating outlook of Progress Energy Carolinas continues to be stable.
Moody's also affirmed Progress Energy, Inc.'s
Baa2 senior unsecured and Prime-2 commercial paper rating.
The rating outlook for Progress Energy, Inc. continues to
The downgrade of Progress Energy Florida's ratings reflects declining
cash flow coverages and rising leverage over the last several years;
higher costs for O&M, insurance, pension, and healthcare;
unanticipated storm restoration costs experienced in 2004; regulatory
risks associated with its upcoming 2005 rate case and the timing of hurricane
cost recovery; and a large ongoing capital expenditure program to
keep up with high customer growth rates and maintain a required 20%
reserve margin in Florida. The downgrade also reflects the integration
of Progress Energy Florida into the overall Progress Energy system,
with Progress Energy management increasingly operating its two utility
subsidiaries as a single system. The utilities participate in a
money pool arrangement for intercompany borrowing and their financial
profiles have been converging over the last several years.
The downgrade of the ratings of Progress Capital Holdings, Inc.
and FPC Capital Trust I reflects their heavy reliance upon dividends that
are upstreamed from Progress Energy Florida to intermediate holding company
Florida Progress Corporation. Florida Progress guarantees debt
issued by Progress Capital Holdings, Inc. and FPC Capital
The stable outlook for Progress Energy Florida, Progress Capital
Holdings, and FPC Capital Trust I reflects financial metrics that
Moody's expects will stabilize going forward. Progress Energy
Florida has manageable long-term debt maturities over the next
several years and Moody's expects its adjusted debt-to-capitalization
ratio to remain at or close to the current 51% level for the immediate
future. The stable outlook also considers the utility's high
growth rate, mostly residential service territory with favorable
demographics, the lack of deregulation in Florida, and the
state's generally constructive regulatory environment. Although
there is near term uncertainty with regard to its pending rate case and
the timing of hurricane cost recovery, Moody's believes these
regulatory issues should be manageable within its current rating.
An unexpected adverse regulatory outcome with respect to base rates or
hurricane cost recovery could result in a revision of the rating or the
The maintenance of a negative outlook on Progress Energy, Inc.'s
ratings reflects consolidated financial ratios that are weak for the parent
company's current rating category; rising O&M, pension,
benefit, insurance, and nuclear security costs; and delays
in executing its longstanding plans to deleverage at the holding company
level. The company has not met some of the targets that were set
following the acquisition of Florida Progress in 2000, including
reducing consolidated debt to capitalization to 55%. Higher
short-term debt incurred more recently to finance hurricane costs
has further delayed its ability to meet this target and the company now
does not expect to achieve the 55% ratio until the end of 2005
at the earliest.
The negative outlook also reflects ongoing challenges by IRS field auditors
to the legitimacy of most of the company's synfuel tax credits and
the unexpectedly early termination of synfuel production in 2004 as a
result of the hurricanes, which negatively affected 2004 earnings.
The company estimates that if all of its synfuel tax credits were disallowed
by the IRS, it would require a one-time cash payment of at
least $286 million, and earnings and equity would be reduced
by at least $1 billion. Pending revisions in the interpretation
of FASB 109, which relates to uncertain tax positions, could
require the company to create a reserve for $1 billion until the
IRS issue is resolved, which would increase debt-to-capitalization
levels immediately. This would leave little cushion under the 65%
debt-to-capital covenant in its $1.13 billion
bank revolving credit agreement. Moody's notes that this
covenant has been changed to 68% in its new $600 million
bridge credit facility, which was closed in January.
The affirmation of the ratings of Progress Energy Carolinas reflects its
strong cash flow generation and debt service coverage ratios, slightly
improving financial ratios over the last several years, and declining
debt to capitalization levels. Although the utility is under a
rate freeze through 2007 in North Carolina, its largest jurisdiction,
it operates in regulatory environments in North and South Carolina that
are generally constructive. The utility is experiencing increases
in operating expenses, some of which can't be recovered while
it remains under a rate freeze. The company also faces increasing
capital expenditures for environmental compliance, most of which
can be recovered from customers. The utility's cash flow
coverage ratios and leverage ratios are relatively strong for its current
Progress Energy, Inc. is a diversified energy company headquartered
in Raleigh, North Carolina. Its utility subsidiaries Carolina
Power & Light Company d/b/a Progress Energy Carolinas is headquartered
in Raleigh and Florida Power Corporation d/b/a Progress Energy Florida,
Inc. is headquartered in St. Petersburg, Florida.
Corporate Finance Group
Moody's Investors Service
Michael G. Haggarty
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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