MOODY'S DOWNGRADES RATINGS OF CENTRAL POWER AND LIGHT, SOUTHWESTERN ELECTRIC POWER, AND WEST TEXAS UTILITIES, CONFIRMS RATINGS OF CENTRAL AND SOUTH WEST CORPORATION AND OTHER SUBSIDIARIES
New York, 4/28/1997 -- Moody?s Investors Service downgraded the ratings of Central Power and Light Company, senior secured to A3 from A2; of Southwestern Electric Power Company, to Aa3 from Aa2; and of West Texas Utilities, to A2 from A1. The downgrades of the three Central and South West Corporation utilities reflect competitive and, in the case of Central Power and Light Company (CPL), regulatory pressures in the transition of the electric utility industry to an open market environment. Moody?s confirmed the ratings of the other Central and South West (CSW) affiliates, including Public Service Company of Oklahoma (Aa3), CSW Investments (Baa2), CSW Credit (P-1), CSW Energy (Baa2), SEEBOARD (Baa1), and the commercial paper issued by Central and South West Corporation (P-2).
While the companies have demonstrated considerable success in controlling costs in their predominately low-cost system, interest coverage and other key financial measurements have declined at each of the utilities as they compete to retain customers. West Texas Utilities (WTU) has experienced and will continue to experience margin pressures due to intense competition in the wholesale power market, the source of a significant amount of WTU?s sales.
Central Power and Light also faces growing regulatory uncertainty and reduced revenues due to a controversial March 1997 rate order. The Texas commission used this rate case filing as a vehicle to influence the pace of deregulation in the state, ordering a $27 million reduction in annual revenues retroactive to May 1996 and subsequent $16 million reductions in each of 1997 and 1998. The commission pursued a revenue reduction target as part of what they have termed a ?glide path? to lower rates. The rate reductions imply less than full recovery of past investment, specifically the South Texas Project nuclear plant. Moody?s estimates that CPL?s stranded investments are approximately $1.6 billion, representing 111% of equity. The company is expected to litigate the commission?s rate order. While the company may be able to mitigate certain aspects of the order, litigation is expected to be slow and uncertain and competitive pressures are likely to rise.
Central Power and Light?s first mortgage bond and secured pollution control bond ratings were lowered to A3 from A2 and the unsecured pollution control bond and counterparty ratings to Baa1 from A3. The preferred stock was lowered to ?baa1? from ?a3?. Moody?s assigned "baa1" ratings to the $150 million of capital securities to be issued by CPL Capital I and II, and a Baa2 subordinated debt rating to the underlying junior subordinated deferrable interest debentures issued to CPL Capital I and II. CLP Capital I and II are special purpose financing trust vehicles created by Central Power and Light Company solely to issue Trust Originated Preferred Securities.
Southwestern Electric Power?s first mortgage bond and secured pollution control bond ratings were lowered to Aa3 from Aa2 and the unsecured pollution control bond and counterparty ratings to A1 from Aa3. The preferred stock was lowered two notches to ?a1? reflecting the subordination of the cumulative preferred stock to a planned hybrid preferred stock similar in structure to the recent issuance by Public Service Company of Oklahoma. Moody?s assigned "aa3" ratings to the $110 million of capital securities to be issued by SWEPCO Capital I and II, and an A2 subordinated debt rating to the underlying junior subordinated deferrable interest debentures issued to SWEPCO Capital I and II. SWEPCO Capital I and II are special purpose financing trust vehicles created by Southwestern Electric Power Company solely to issue Trust Originated Preferred Securities.
West Texas Utilities? first mortgage bond rating was lowered to A2 from A1, the unsecured pollution control bond and counterparty ratings to A3 from A2, and the preferred stock to ?a3? from ?a2?.
The ratings outlook for CSW and its subsidiaries is stable, with the exception of Public Service Company of Oklahoma for which the rating outlook continues to be negative.
Central and South West Corporation is a registered utility holding company based in Dallas, Texas. Its wholly owned electric utility subsidiaries, Central Power and Light Company, Public Service Company of Oklahoma, Southwestern Electric Power Company, and West Texas Utilities Company. serve customers in Texas, Oklahoma, Louisiana, and Arkansas. CSW also owns SEEBOARD, a regional electric distribution company in the United Kingdom.
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