MOODY'S DOWNGRADES RATINGS OF ALLIANT ENERGY CORPORATION AND ITS SUBSIDIARIES
Approximately $3.0 Billion of Debt Securities Affected
New York, January 13, 2003 -- Moody's Investors Service downgraded the senior unsecured rating of Alliant
Energy Resources, Inc. (Resources) to Baa3 from Baa1.
Moody's also lowered the ratings for the company's utility subsidiaries
Wisconsin Power and Light Company (WP&L: sr. sec.
to A1 from Aa2) and Interstate Power and Light Company (IP&L:
sr. sec. to A3 from A1). This rating action concludes
the review for downgrade. The rating outlook is stable.
Separately, Moody's downgraded the commercial paper ratings
for Alliant Energy Corporation (Alliant) and Resources to Prime-3
Resources is an intermediate holding company for Alliant's non-regulated
activities. Alliant guarantees its debt.
Ratings downgraded include:
Alliant, commercial paper to Prime-3 from Prime-2;
Resources, senior unsecured debt to Baa3 from Baa1, commercial
paper to Prime-3 from Prime-2;
WP&L, senior secured rating to A1 from Aa2, senior unsecured
and issuer rating to A2 from Aa3, preferred stock to Baa1 from A2,
senior secured shelf to (P)A1 from (P)Aa2, senior unsecured shelf
to (P)A2 from (P)Aa3;
IP&L, senior secured to A3 from A1, senior unsecured and
issuer rating to Baa1 from A2, junior subordinate to Baa2 from A3,
preferred stock Baa3 from Baa1, senior secured shelf to (P)A3 from
(P)A1, preferred shelf to (P)Baa3 from (P)Baa1, short term
rating for variable rate remarketed pollution control revenue rate bonds
to VMIG-2 from VMIG-1.
Arnold Fuel Inc., to Prime-2 from Prime-1.
WP&L's Prime-1 commercial paper rating was confirmed at Prime-1.
These rating actions reflect:
(1) Substantial holding company leverage, including guaranteed debt;
(2) Lower than anticipated earnings and cash flow from non-regulated
(3) The reliance on asset sales and equity offerings to improve the company's
(4) The potential for increased pressure on the regulated utilities to
support the cash needs of Alliant;
(5) Sizable capital expenditures program at IP&L and WP&L.
Total debt at Resources as of September 30th 2002 was $1.6
billion, accounting for 50% of consolidated debt.
A large portion of this debt was incurred in financing the expansion of
non-regulated activities. However, a commensurate
increase in cash flow associated with these investments has not occurred.
Resources' cash flow for the nine months ended September 30,
2002 totaled only $27 million or less than 7% of consolidated
Contributing to Resources' financial performance has been the poor
returns on its investment in Brazilian electric distribution and generating
assets due to a combination of a weak wholesale power market, electricity
rationing due to drought conditions, and regulatory and political
uncertainty. Improved returns on these assets are not expected
at least until 2004.
Moody's ratings consider Alliant's strategic plan to improve
its balance sheet through asset sales. Assets which the company
has announced that it will attempt to divest include Whiting Petroleum
Corporation, Australian hydroelectric assets, and the company's
portfolio of affordable housing investments. These assets have
historically provided the bulk of Resources' cash flow. Non-regulated
assets to be retained include the Brazilian portfolio and investments
Management anticipates that it will be able to reduce approximately $800
million to $1 billion of debt through asset sales. Moody's
sees considerable execution risk associated with the company's asset
sale program with regard to timing and proceeds. Even under a best
case scenario for asset sales, substantial debt will remain at Resources
and could be burdensome if the remaining assets do not generate improved
Alliant's strategic plan also calls for the issuance of $200-300
million in equity in 2003, proceeds from which will be provided
to the regulated utilities to improve their financial flexibility.
The rating actions at the regulated utilities reflect the risk that internal
cash flow could be pressured to support Alliant's cash needs.
Additionally, the ratings reflect IP&L and WP&L's respective
need for significant capital for sizable utility infrastructure and reliability
enhancement programs. IP&L's capital expenditure program
is expected to exceed $1.3 billion through 2005, compared
to a current asset base of approximately $2.6 billion.
While these investments are generally recoverable and provide an allowed
regulatory return, the utilities projected annual capital expenditures
are expected to exceed their respective retained cash flow through 2005.
While Alliant anticipates funding a majority of the utility's funding
shortfall with equity capital, the utility's balance sheets
could be pressured if Alliant is unable to raise such capital.
Alliant, IP&L and WP&L have three separate syndicated bank
facilities, each of which terminate in October 2003.
The stable outlook for Resources reflects Moody's expectation that
the asset sale program will be substantially executed and that Alliant's
financial structure will improve over the near term. The stable
outlook for the utilities reflects our expectation that equity capital
will be provided in the near term.
Alliant is the holding company for Resources, IP&L, WP&L
and other smaller subsidiaries. Alliant Energy Corporation and
Alliant Energy Resources, Inc. are based in Madison,
Corporate Finance Group
Moody's Investors Service
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service