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Rating Action:

MOODY'S PLACES RATINGS OF TRANSALTA UNDER REVIEW FOR POSSIBLE DOWNGRADE (SENIOR UNSECURED AT Baa1)

24 Jan 2003
MOODY'S PLACES RATINGS OF TRANSALTA UNDER REVIEW FOR POSSIBLE DOWNGRADE (SENIOR UNSECURED AT Baa1)

Approximately USD$1 Billion in Debt Affected

Toronto, January 24, 2003 -- Moody's Investors Service placed the long-term ratings of TransAlta Corporation under review for possible downgrade concurrent with the company's announcement that it is acquiring an ownership interest in CE Generation LLC. This action reflects our concern for the potential impact of continued weakness in North American electricity markets and the effect that the potential deployment of additional investment in support of the company's growth strategy will have on anticipated financial performance.

The ratings affected are the Baa1 assigned to TransAlta's unsecured debt and the (P)Baa1 and (P)Baa3 assigned to its unsecured debt and preferred stock under its universal shelf registration.

TransAlta's strategy is focused on the opportunities available within two principal business segments: Generation and Energy Marketing. Its stated goal is to increase its generating capacity from the current level of approximately 9,000 MW in service or under construction to 15,000 MW. Stability of cash flows is provided by the high proportion of contracted capacity, currently about 90% of capacity in service. While this level can be expected to decline over time, the company has stated it will contract at least 75%. During the first three quarters of 2002, plant operating performance remained strong with improved availability partially offset by the required dispatch of certain plants when market prices were lower than marginal plant operating costs. While TransAlta's total net debt to capitalization declined to 49% at the end of the third quarter from 52% at year end 2001, the company's ongoing capital expenditures in addition to possible additional acquisitions may put pressure on financial leverage and cash flow coverages in the future.

Moody's review will focus on the company's financial strategies for offsetting the higher business risk in the generation segment associated with an excess of capacity and the risk to energy prices that may be expected over the next few years. Additionally the review will evaluate the capital necessary to reach its growth target and the options that are available to sustain strong financial performance. In this regard, the expected decrease in the percentage of generating capacity subject to long-term contracts and the resulting cash flow volatility, the contribution of the proposed CE Generation LLC. acquisition, and the evolution of the company's development strategy will all be assessed.

TransAlta announced the acquisition of a 50% interest in CE Generation LLC. from El Paso Merchant Energy. The remaining 50% would remain owned by MidAmerican Energy Holdings Company, with whom TransAlta formed an alliance. TransAlta will acquire generation comprised of 165 MW geothermal in California and 245 MW gas-fired in Arizona, Texas and New York. TransAlta will pay El Paso US$205 million plus approximately US$35 million for working capital adjustments. CE Generation has non-recourse debt of approximately US$1 billion of which US$140 million is secured by a guarantee from MidAmerican. We estimate that the portion of non-recourse debt attributable to the company will approximate US$430 million.

TransAlta is headquartered in Calgary, Alberta, Canada. It is Canada's largest non-regulated electric generation and marketing company with more than C$7 billion in total assets and in excess of 9,000 MW of capacity in operation or under construction.

Toronto
Allan McLean
Vice President - Senior Analyst
Corporate Finance
Moody's Canada Inc.
(416) 214-1635

Toronto
Andrew J. Kriegler
Managing Director
Corporate Finance
Moody's Canada Inc.
(416) 214-1635

No Related Data.
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