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Rating Action:

MOODY'S DOWNGRADES TECO ENERGY'S SENIOR UNSECURED RATING TO Ba1 WITH A NEGATIVE OUTLOOK; AND TAMPA ELECTRIC COMPANY'S SENIOR SECURED RATING TO A3 WITH A STABLE OUTLOOK

21 Apr 2003
MOODY'S DOWNGRADES TECO ENERGY'S SENIOR UNSECURED RATING TO Ba1 WITH A NEGATIVE OUTLOOK; AND TAMPA ELECTRIC COMPANY'S SENIOR SECURED RATING TO A3 WITH A STABLE OUTLOOK

Approximately $3.6 billion of Debt Securities Affected.

New York, April 21, 2003 -- Moody's Investors Service downgraded TECO Energy's (TECO) senior unsecured rating to Ba1 from Baa2. Moody's downgraded Tampa Electric Company's senior secured rating to A3 from A1; issuer and senior unsecured rating to Baa1 from A2; long-term pollution control revenue bonds to Baa1 from A2; and commercial paper rating to Prime-2 from Prime-1. Moody's also downgraded the commercial paper rating of TECO Finance, Inc. to Not Prime from Prime-2 and the rating on the trust preferred securities of TECO Capital Trust I and TECO Capital Trust II to Ba2 from Baa3. The rating outlook for TECO is negative and the rating outlook for Tampa Electric is stable. This action concludes the review of TECO and Tampa Electric's ratings that was initiated on March 12, 2003.

The downgrade of TECO's ratings reflects higher risks associated with the company's large and concentrated exposure to the merchant generation markets, which will increase further following its announced buyout of partner Panda Energy's interests, and diminished asset value as evidenced by substantial writedowns being taken by the company related to power projects, turbine commitments, and the consolidation of TECO Panda Generating Company debt pursuant to FASB FIN 46. Moody's believes that additional writedowns are likely at its TECO Power Services (TPS) subsidiary's remaining power projects, including the suspended Dell and McAdams plants and perhaps the nearly completed Union and Gila projects, which could pressure the debt to capital covenant under its revolving credit agreements. Finally, continued poor merchant energy market conditions will continue to severely limit the cash flow generated by the TPS project portfolio in 2003 and 2004, making it increasingly difficult for TECO to meet parent company interest and dividend obligations without relying on additional asset sales or debt financings. Moody's expects that unfavorable energy market conditions will continue through 2004, the first full year of operation of TECO's large 4,400 MW Union and Gila projects.

The negative outlook on TECO's ratings reflects the company's limited financial flexibility for the remainder of 2003, which Moody's believes will continue through 2004, and the possibility that TECO will have to execute additional asset sales or debt financings to offset the negative effects of poorly performing merchant plants. Liquidity continues to be fairly tight in Moody's opinion, and TECO has large rating triggered obligations associated with this exposure. In particular, TECO is required, within 15 days of this rating action, to collateralize or repay a $375 million equity bridge loan that would otherwise have been paid in increments through the remainder of the year. The negative outlook also considers the possibility of additional writedowns within its power project portfolio and the potential that TECO will need to provide further support to the Union and Gila power projects.

As a result of this rating downgrade, additional contingent obligations will now be required to satisfy letter of credit provisions in its construction contract undertakings for the Union and Gila projects. Under the terms of these undertakings and as is disclosed in TECO's 2002 10-K, TECO is now required, as a result of this downgrade, to deliver letters of credit in an amount equal to the full construction contract price of the Union and Gila projects, or such lesser amount satisfactory to the majority of the project lenders. Although TECO believes the amount actually required would be based on the amounts reasonably necessary to cover remaining payment and performance obligations for the Union and Gila projects (which it estimated to be approximately $60 million at 12/31/02), Moody's is concerned with the uncertainty surrounding the actual amount of this obligation.

The downgrade of Tampa Electric's ratings reflects Moody's view that the regulated utility has been somewhat affected by the financial pressures on the parent company, for several reasons. First, as part of TECO's cash generation plans, Tampa Electric has postponed its own capital expenditure program, including the repowering of its Bayside Units 3 and 4. Second, Tampa Electric has relied on capital contributions from TECO to maintain equity levels in recent years, which are unlikely going forward given the continued difficulties facing the parent company. Third, Tampa Electric has issued $250 million of unsecured notes, increasing leverage at the utility, and has made a $100 million capital contribution to TECO in 2003. Fourth, Tampa Electric's financial performance measures have weakened somewhat from their traditionally high levels, for the most part as a result of a large capital expenditure program at the utility. In addition, Tampa Electric renewed its 364-day $300 million revolving credit facility in November 2002, but without a one year term loan option, primarily due to issues at the parent company. This limits the utility's financial flexibility as the new maturity date approaches in November 2003.

The stable outlook on Tampa Electric's ratings reflects Moody's view that the current ratings level adequately reflects the financial pressure placed on the utility by TECO as it attempts to stabilize its own financial condition. Moody's will continue monitor the performance of Tampa Electric as it completes major elements of its capital expenditure program over the next few months; whether or not there is any utilization of its $300 million revolving credit, which is not anticipated; management's progress in either extending, replacing, or adding a term loan option to its $300 million revolving credit, maturing in November; and the potential that additional capital expenditures may be required at Tampa Electric to meet growth and expansion needs.

Moody's notes that management's most recent efforts to shore up liquidity at the parent company have been significant in supporting TECO's rating at the Ba1 level. In particular, the reduction in TECO's dividend as well as its ability to obtain additional financings at both TECO and Tampa Electric is expected to permit the company to withstand a period of little to no cash generation from the Union and Gila projects in both 2003 and 2004 while maintaining liquidity. However, Moody's also notes that in its effort to limit its long-term exposure to the merchant generation markets, TECO has actually increased its exposure over the short-term by buying out its partner, Panda Energy, thereby increasing its interest in some power projects. Ratings stability at TECO will depend on the timing and amount of likely writedowns associated with its remaining merchant plants, the successful execution of the newest action plans outlined by TECO management in its April 11, 2003 financial presentation, and a significant improvement in the cash generation prospects of its merchant portfolio.

Rating lowered include:

TECO Energy's senior unsecured debt rating, to Ba1 from Baa2 and the trust preferred securities rating of TECO Capital Trust I and TECO Capital Trust II, to Ba2 from Baa3. The rating outlook is negative.

Tampa Electric's senior secured rating, to A3 from A1; issuer and senior unsecured rating, to Baa1 from A2; long-term pollution control revenue bond debt rating, to Baa1 from A2; and commercial paper rating, to Prime-2 from Prime-1. The rating outlook is stable.

TECO Finance, Inc.'s commercial paper rating, to Not Prime from Prime-2.

TECO Energy is a diversified energy company headquartered in Tampa, Florida, and the parent company of Tampa Electric Company.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael G. Haggarty
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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