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02 Sep 1999
MOODY'S INVESTORS SERVICE CONFIRMS DEBT RATINGS FOR CINERGY CORP., THE CINCINNATI GAS & ELECTRIC COMPANY AND PSI ENERGY INC.
Moody's Investors Service concluded its review and confirmed the debt ratings of Cinergy Corp. (Cinergy), The Cincinnati Gas & Electric Company (CG&E) and PSI Energy Inc. (PSI). Moody's had placed those ratings on review August 6th in response to the then uncertain financial ramifications of Cinergy's not having delivered power to certain wholesale power customers on July 30th.
Moody's confirmed the ratings after reviewing Cinergy's power marketing strategy, risk management strategy and the events culminating in Cinergy's delivery failures.
Confirmed are the long term debt ratings for Cinergy (Baa2 senior unsecured), CG&E (A3 senior secured, Baa1 senior unsecured) and PSI (A3 senior secured, Baa1 senior unsecured). Also confirmed are the Cinergy issuer rating (Baa2), Cinergy's Prime-2 commercial paper rating, the senior unsecured bonds for the Cinergy-guaranteed Cinergy Global Resources bonds (Baa2) and the Cinergy-guaranteed County of Hamilton, Ohio Local District Cooling Facilities Revenue Bonds, Series 1998 (Trigen-Cinergy Solutions of Cincinnati LLC Project) (Baa2). With regard to CG&E, also confirmed are CG&E's issuer rating (Baa1), junior subordinated securities (Baa2) and preferred stock ("baa1"). With regard to PSI, also confirmed are PSI's issuer rating (Baa1), Junior Maturing Principal Securities (Baa2), preferred stock ("baa1"), secured medium term note program (A3), secured revenue bonds (A3) and unsecured revenue bonds (Baa1).
Not placed on review and confirmed are (1) CG&E's and PSI's Prime-2 commercial paper ratings and VMIG-2 short term revenue bond ratings; (2) Cinergy and CG&E bonds insured by AMBAC or MBIA, (3) long and short term ratings for CG&E's and PSI's revenue bonds backed by bank letters of credit and (4) the senior secured and unsecured long term debt ratings for Union Light, Heat & Power Company (ULH&P), a CG&E subsidiary. ULH&P's A3 senior secured and Baa1 senior debt ULH&P ratings continue to carry a positive outlook.
In late July the Midwest experienced repeated days of very hot weather resulting in extreme regional electrical demand. During this period, Cinergy not only had to serve its native load, but also had to serve obligations to long term wholesale purchasers, wholesale power purchasers under options written in 1998 and various other wholesale transactions. On July 30th, although Cinergy met its native load and long term wholesale obligations, Cinergy could not in some hours meet certain of its other obligations. Cinergy invoked force majeure at the time of the delivery failures but has since agreed to cash settlements for each of the failed deliveries. On August 10th, Cinergy announced cash losses of $73 million after tax reflecting both increased costs during July's severe weather and the anticipated liquidated damage claims.
Moody's believes Cinergy's July failures and losses to be a legacy of Cinergy's previous power trading strategy and not reflective of Cinergy's supply and power marketing strategy going forward. Although Cinergy has bought and sold wholesale electricity for many years, during the past year they refocused the business from a nationwide trading business to a more super-regional marketing business. Cinergy now primarily sells anticipated excess generation from its own generators and balances its needs in the hourly trading market. A Cinergy subsidiary, Cinergy Services, sells electricity on behalf of CG&E and PSI. Marketing profits and losses therefore show up directly on an allocated basis on CG&E's and PSI's books.
Moody's expects Cinergy to be able to meet its obligations during high demand periods in future years. Cinergy's total power sales obligations should decrease significantly in 2000 as a result of expiring wholesale and third party power sales commitments including the options sold in 1998. In addition, Cinergy is pursuing a variety of strategies which should more closely align its future possible demand and supply obligations.
From a financial point of view, Cinergy's July results will have little effect on CG&E's, PSI's and Cinergy's financial strength. Both utilities are stable in their rating classes and Cinergy, as a result of its recent sale of its 50% Midlands share to GPU and $600 million in revolver capability, maintains very significant liquidity.
Cinergy has publicly stated its intent to reexamine its presence in the supply business. Moody's does not expect Cinergy to complete its reexamination until its Ohio deregulation compact becomes clearer. Moody's will opine on any strategy change at the time such change, if any, is announced.
Cinergy is a registered utility holding company based in Cincinnati, Ohio. CG&E and PSI are wholly-owned Cinergy subsidiaries. CG&E is also based in Cincinnati, Ohio while PSI is based in Plainfield, Indiana.
No Related Data.
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