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Rating Action:

MOODY'S LOWERS PROGRESS ENERGY'S SENIOR UNSECURED DEBT RATING TO Baa2, STABLE OUTLOOK, AND LOWERS TRUST PREFERRED RATING OF FPC CAPITAL I TO Baa1, NEGATIVE OUTLOOK. MOODY'S ALSO CHANGES THE RATING OUTLOOK OF FLORIDA POWER CORPORATION TO NEGATIVE.

07 Feb 2003
MOODY'S LOWERS PROGRESS ENERGY'S SENIOR UNSECURED DEBT RATING TO Baa2, STABLE OUTLOOK, AND LOWERS TRUST PREFERRED RATING OF FPC CAPITAL I TO Baa1, NEGATIVE OUTLOOK. MOODY'S ALSO CHANGES THE RATING OUTLOOK OF FLORIDA POWER CORPORATION TO NEGATIVE.

Approximately $6.8 Billion of Debt Securities Affected.

New York, February 07, 2003 -- Moody's Investors Service has lowered Progress Energy's senior unsecured debt rating to Baa2 from Baa1 with a stable outlook and confirmed Progress Energy's Prime-2 commercial paper rating. In addition, Moody's has lowered the trust preferred rating of FPC Capital I to Baa1 from A3 with a negative outlook. Moody's has also changed the outlook of the ratings of Florida Power Corporation (A1 senior secured) and Progress Capital Holdings, Inc. (A3 senior unsecured) to negative.

Moody's has taken this action because of the high level of debt at the Progress Energy holding company ($4.8 billion) resulting from the acquisition of Florida Progress in late 2000, as well as the subsequent expansion of its Progress Ventures unregulated generation subsidiary. In the two years following the Florida Progress acquisition, Progress Energy has deleveraged at a slower pace than originally anticipated as a result of a number of factors, including plant acquisitions at Progress Ventures, the writedown of its telecommunications and other unregulated assets, and delays in the sale of various noncore businesses, including its Progress Rail subsidiary. Moody's notes that the company did issue approximately $600 million of common stock in November 2002, which has reduced total debt to capital to approximately 61%.

In addition, Moody's believes that the quality of the cash flows being upstreamed from its utility subsidiaries, as well as its Progress Ventures unregulated generating subsidiary, have marginally declined since the acquisition was consummated and the original Progress Energy ratings were assigned. At utility subsidiary Florida Power Corporation, a base rate reduction enacted earlier this year, higher capital expenditures, and increased leverage to finance these capital expenditures are expected to put pressure on the utility's financial performance going forward. Moody's also believes that Progress Energy management is operating its two utility subsidiaries as one system with financial characteristics likely to become increasingly similar. Moody's will continue to review and monitor management's strategy with regard to its two utility subsidiaries to determine if ratings should converge over time.

As a result of these factors, Moody's has changed the outlook of the ratings of Florida Power to negative. Because securities issued by Progress Capital Holdings, Inc. and FPC Capital I are guaranteed by Florida Progress Corporation (not rated), which derives its credit strength predominantly from Florida Power, the outlook on these ratings has been changed to negative as well. The trust preferred rating of FPC Capital I has been lowered to Baa1 from A3, a conforming adjustment to make its rating equal to the rating of the assets held by the trust, which is subordinated debt.

These trends will also limit the contribution of Florida Power to the overall dividends upstreamed to the parent company. Whereas Florida Power had historically generated positive free cash flow, Moody's does not anticipate that there will be sufficient free cash flow available going forward to provide substantial additional support to the parent company. Because of the more limited financial flexibility of Florida Power, Progress Energy is expected to rely on Carolina Power & Light Company (A3 senior secured) for a higher proportion of dividends upstreamed to service parent company debt and other obligations. CP&L has exhibited a generally stable financial performance within its rating category with manageable capital expenditures which should be slightly lower than in previous years. Because Progress Energy expects to derive an average of 70% of its upstreamed dividends from CP&L, the lower rated of its two utility subsidiaries, this has also put added downward pressure on the holding company rating.

The stable outlook for Progress Energy's rating reflects the company's modest unregulated generation strategy, which has been focused on markets in or very close to its service territory in the southeast region of the country, and has a high proportion of its generation under contract. Moody's believes that these factors limit the company's exposure to the depressed wholesale power markets. Progress Energy will still be somewhat exposed by the 30% of its unregulated generation portfolio which is unhedged for 2003 and 2004 and the renegotiation of a number of wholesale power contracts that expire over the next several years, at potentially lower prices. Although these factors may limit the cash flows upstreamed to the parent company from Progress Ventures, Moody's expects that dividends from CP&L and Florida Power will continue to be sufficient to maintain Progress Energy's ratings at the current Baa2 senior unsecured rating level.

Progress Energy maintains adequate liquidity, with two committed bank credit facilities totaling $880 million supporting its commercial paper programs, which were reduced from $1 billion in November 2002. In addition, Progress Energy maintains a $300 million uncommitted bank line. CP&L and Florida Power also maintain committed credit facilities of $570 million and $291 million, respectively, supporting their own commercial paper programs. Progress Energy currently has approximately $65 million of commercial paper outstanding at the parent company and projects average commercial paper borrowings of approximately $125 million during 2003. The credit facilities require the maintenance of a debt to total capital ratio of 70% (falling to 68% after June 30, 2003) and the maintenance of an EBITDA to interest expense ratio of at least 2.5x to 1. At December 31, 2002, Progress Energy was in compliance with these covenants, maintaining a debt to total capital ratio of 62.3% and an EBITDA to interest expense ratio of 3.42x. Long-term debt maturities are manageable over the next several years, with $500 million of Progress Energy debt due in 2004 expected to be paid off, for the most part with $400 million of proceeds from the sale of North Carolina Natural Gas.

Ratings lowered include Progress Energy's senior unsecured debt, to Baa2 from Baa1; and the ratings on the shelf registrations for the issuance of Progress Energy senior unsecured debt, to (P)Baa2 from (P)Baa1; junior subordinated debt, to (P)Baa3 from (P)Baa2; and trust preferred stock, to (P)Ba1 from (P)Baa3. The trust preferred rating of FPC Capital I has also been lowered to Baa1 from A3. Progress Energy's Prime-2 commercial paper rating is confirmed.

Progress Energy is a diversified energy company headquartered in Raleigh, North Carolina.

New York
John Diaz
Managing Director
Energy, Comm. and Spec. Grade
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael G. Haggarty
Vice President - Senior Analyst
Energy, Comm. and Spec. Grade
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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