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30 Sep 2005
MOODY'S PLACES THE LONG TERM DEBT RATINGS OF AMEREN CORPORATION (A3 SR. UNS.) AND FOUR ILLINOIS SUBSIDIARIES UNDER REVIEW FOR POSSIBLE DOWNGRADE
Approximately $2.3 Billion of Debt Securities On Review for Possible Downgrade
New York, September 30, 2005 -- Moody's Investors Service placed the long term debt ratings of Ameren
Corporation (Ameren, A3 senior unsecured); Central Illinois
Public Service Company (d/b/a AmerenCIPS, A2 senior unsecured);
CILCORP Inc. (Baa2 senior unsecured); Central Illinois Light
Company (d/b/a AmerenCILCO, A3 senior unsecured); and Illinois
Power Company (d/b/a AmerenIP, Baa2 senior unsecured) under review
for possible downgrade. Ameren's Prime-2 short term rating
for commercial paper is not under review. The ratings of Union
Electric Company (d/b/a AmerenUE) and Ameren Energy Generating Company
The rating action reflects the increasingly contentious political and
regulatory environment in Illinois at a time when Ameren's three
operating utilities in the state are seeking to implement a transitional
plan for power procurement that could result in electric rate increases
of between 20% and 35% beginning in 2007. Both the
Attorney General (AG) and the Governor of the State of Illinois have strongly
opposed Ameren's power procurement plan for its Illinois utilities,
with the AG filing suit against the Illinois Commerce Commission (ICC)
to stop the procurement proceedings. The Governor also took the
extraordinary step of removing the Chairman of the ICC in order to name
a candidate who was head of the largest state consumer advocate group,
which has previously filed testimony in opposition to the utilities'
Under the terms of the current regulatory arrangement, in place
until December 31, 2006, rates for electric supply at Ameren's
Illinois utilities are capped at below-market rates through contracts
with both affiliated and unaffiliated generation companies. Under
electric restructuring legislation passed in the state, electric
generation rates are expected to transition to market-based rates
beginning on January 1, 2007. Market prices for wholesale
electricity are significantly above the contract level price due in large
part to higher fuel costs, particularly natural gas.
The review of parent company Ameren's ratings reflects the importance
of the three Illinois utility businesses to its consolidated financial
profile, particularly since the acquisition of Illinois Power last
year. The Illinois utilities now make up nearly half of Ameren's
total utility business. Ameren's Union Electric utility subsidiary's
ratings are not directly affected by the developments in Illinois as it
operates solely in the state of Missouri and continues to maintain strong,
stable financial ratios. The ratings of Ameren Energy Generating
Company are also unaffected, reflecting its competitive, low
cost generating portfolio; upside potential beyond January 1,
2007 when contracts to sell power expire and the company potentially may
benefit from higher market prices; and plans to reduce leverage by
retiring $225 million of the company's long-term debt
on November 1, 2005.
Although utilities are usually allowed to recover prudently incurred costs
and an eventual settlement on rates is expected, recent actions
and statements by state government officials suggest an increased risk
of a serious dispute over reasonable recovery. Ameren has expressed
a willingness to consider a rate increase phase-in plan for its
Illinois utilities to mitigate rate shock for customers. If Ameren
is able to negotiate a settlement on the power procurement issue,
Moody's believes that the credit quality of its Illinois utilities
may weaken over the intermediate term as power costs are deferred to future
years. A lengthy deferral would result in increased debt balances
and raise concerns about the ultimate full recovery of costs.
The review will focus on the prospects for a resolution of the dispute
over the transitional plan for power procurement, related rate increases,
and the timely recovery of the utilities' increased costs and investment
Ratings under review for possible downgrade include:
Ameren's A3 senior unsecured debt and Issuer Rating;
Central Illinois Public Service Company's A1 senior secured,
A2 senior unsecured and Issuer Rating, Baa1 preferred stock,
and the VMIG-1 short-term rating for its tax-exempt
CILCORP, Inc.'s Baa2 senior unsecured;
Central Illinois Light Company's A2 senior secured; A3 Issuer
Rating; and Baa2 preferred stock;
Illinois Power Company's Baa1 senior secured; Baa2 Issuer Rating,
and Ba1 preferred stock;
and the (P)Baa1 rating for the trust preferred securities issued by Ameren
Capital Trust I and II.
Ameren Corporation is a public utility holding company headquartered in
St. Louis, Missouri. It is the parent company of Union
Electric Company (d/b/a AmerenUE), Central Illinois Public Service
Company (d/b/a AmerenCIPS), CILCORP Inc., Central Illinois
Light Company (d/b/a AmerenCILCO), Illinois Power Company (d/b/a
AmerenIP), and Ameren Energy Generating Company.
Corporate Finance Group
Moody's Investors Service
Michael G. Haggarty
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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