MOODY'S LOWERS COMMERCIAL PAPER RATING OF CENTRAL AND SOUTH WEST CORPORATION TO P-2; LOWERS SEEBOARD RATINGS TO Baa1 AND P-2
NEW YORK, 12-19-95 -- Moody's Investors Service lowered Central and South West Corporation's commercial paper rating to P-2 from P-1 in response to significantly greater leverage assumed by CSW to acquire SEEBOARD, a regional electric distribution company based in the U.K. The CSW bid, announced November 6 and accepted by SEEBOARD, values SEEBOARD at the equivalent of $2.5 billion. The rating action completes a review announced November 6. The review focused on the overall and component risks and cash flows of the CSW group. Moody's views the additional debt as manageable, given the good competitive position of CSW's U.S. utilities and the generally stable business outlook for SEEBOARD. However, Moody's expects the increased leverage to put some strain on CSW's cash flow, reducing overall financial flexibility. The outlook for the P-2 CSW Corporation commercial paper rating is stable.
CSW plans to finance the acquisition 60% through non-recourse bank debt raised in the U.K. and with a further 40% through an equity contribution from the U.S. parent. The parent has negotiated an $850 million unsecured bank facility to raise funds for the equity contribution. Moody's has rated this U.S. bank facility an A3 based on the expected cash flows through dividends from subsidiaries and on the consolidated risk profile of the CSW group. CSW plans to pay down the U.S. bank facility over the next three years and is evaluating alternatives including the sale of stock. The outlook for the A3 holding company bank facility rating remains negative until the company completes its near-term plans to reduce the holding company debt load.
Moody's lowered the senior unsecured rating of SEEBOARD's œ 100 million Eurobond to Baa1 from Aa2 and SEEBOARD's commercial paper rating to P-2 from P-1. Moody's also assigned a Baa2 rating to the œ 1.1 billion U.K. bank facility extended to CSW Investments (Investments), a U.K. subsidiary of CSW International which will own SEEBOARD. The U.K. bank facility is secured by the stock of SEEBOARD and is non-recourse to the U.S. parent. The acquisition debt significantly increases leverage and reduces financial flexibility for the consolidated SEEBOARD and its U. K. parents. SEEBOARD dividends will be the sole source of funds to service the non-recourse Investments debt. The ratings reflect the lower risk and greater stability of cash flows of an electric distribution company, SEEBOARD's sound management team, and potential support from CSW should the need arise. The ratings also incorporate an assessment of the prospective competitive pressures in U.K. energy markets, emerging regulatory policy, and the potential retrospective taxation that could occur with a change in political leadership. The outlook for the U.K. ratings is stable.
The outlook for the ratings of CSW's four U.S. utilities remains stable. Moody's does not expect CSW to alter its financial strategy regarding the U.S. utilities to service the SEEBOARD acquisition debt.
Central and South West Corporation is an energy services holding company based in Dallas, Texas. Its four electric utilities, Central Power and Light, Public Service of Oklahoma, Southwestern Electric Power, and West Texas Utilities, serve customers in Texas, Oklahoma, Arkansas, and Louisiana.
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