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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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