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Rating Action:

MOODY'S PLACES THE RATINGS OF PROGRESS ENERGY FLORIDA (A1 Sr. Sec.) UNDER REVIEW FOR POSSIBLE DOWNGRADE; AFFIRMS PROGRESS ENERGY, INC. (Baa2 Sr. Unsec.) AND CHANGES ITS OUTLOOK TO NEGATIVE; AFFIRMS PROGRESS ENERGY CAROLINAS WITH A STABLE OUTLOOK

20 Oct 2004
MOODY'S PLACES THE RATINGS OF PROGRESS ENERGY FLORIDA (A1 Sr. Sec.) UNDER REVIEW FOR POSSIBLE DOWNGRADE; AFFIRMS PROGRESS ENERGY, INC. (Baa2 Sr. Unsec.) AND CHANGES ITS OUTLOOK TO NEGATIVE; AFFIRMS PROGRESS ENERGY CAROLINAS WITH A STABLE OUTLOOK

Approximately $2.6 Billion of Debt Securities Under Review for Possible Downgrade

New York, October 20, 2004 -- Moody's Investors Service placed the ratings of Progress Energy Florida under review for possible downgrade. Ratings under review include Progress Energy Florida's A1 senior secured debt, A2 senior unsecured debt and Issuer Rating, Baa1 preferred stock rating, and Prime-1 commercial paper rating; and Progress Capital Holdings, Inc.'s A3 senior unsecured debt; and the Baa1 trust preferred rating of FPC Capital Trust 1. Moody's affirmed Progress Energy, Inc.'s Baa2 senior unsecured and Prime-2 commercial paper ratings, and changed the rating outlook to negative from stable. Moody's also affirmed the ratings of Progress Energy Carolinas, including its A3 senior secured debt, Baa1 senior unsecured debt and Issuer Rating, Baa3 preferred stock rating, and Prime-2 commercial paper rating. Progress Energy Carolinas continues to have a stable outlook.

The review of Progress Energy Florida's ratings is prompted by declining cash flow coverages and rising leverage over the last several years; expected funding needs for a large capital expenditure program; risks with regard to its upcoming 2005 rate case and the timing of hurricane cost recovery; and higher costs for O&M, insurance, pension, and healthcare. The review will also consider the extent to which the rating of Progress Energy Florida should be notched closer to the rating of its sister utility, Progress Energy Carolinas. Moody's believes that Progress Energy's management is increasingly operating its two utility subsidiaries toward similar financial profiles. The two utilities participate in a money pool arrangement for intercompany borrowing and their financial ratios have been converging over the last several years.

The review of the ratings of Progress Capital Holdings, Inc. and FPC Capital Trust I reflects their heavy reliance upon dividends that are upstreamed from Progress Energy Florida to Florida Progress Corporation, which guarantees debt issued by Progress Capital Holdings, Inc. and FPC Capital I.

The change in the outlook of parent company Progress Energy, Inc.'s ratings to negative from stable reflects financial ratios that are weak for its current rating category; rising O&M, pension, benefit, and insurance costs; and delays in executing its deleveraging plan. Progress Energy, Inc. has failed to meet some of the targets that were set following the acquisition of Florida Progress, including reducing consolidated debt to capitalization to 55%. Higher short-term debt incurred to finance hurricane costs adds to its challenges in meeting this target. The company now does not expect to achieve the 55% ratio until the end of 2005 at the earliest. The negative outlook also reflects continued challenges by IRS field auditors to the legitimacy of most of the company's synfuel tax credits and the unexpected early termination of synfuel production this year as a result of the hurricanes, which will negatively affect earnings.

The affirmation of the ratings of Progress Energy Carolinas reflects its strong cash flow generation and debt service coverage ratios, slightly improving financial ratios over the last several years, and declining debt to capitalization levels. The utility is under a rate freeze through 2007 in North Carolina, its largest jurisdiction. However, it operates in regulatory environments in North and South Carolina that are generally constructive. Although the utility is pressured by higher operating expenses and increasing capital expenditures for environmental compliance, most of which can be recovered from customers over seven years, the utility's financial performance and credit metrics are expected to remain relatively stable and consistent with its current rating category.

Progress Energy, Inc. is a diversified energy company headquartered in Raleigh, North Carolina. Its utility subsidiaries Carolina Power & Light Company d/b/a Progress Energy Carolinas is headquartered in Raleigh, and Florida Power Corporation d/b/a Progress Energy Florida, Inc. is headquartered in St. Petersburg, Florida.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael G. Haggarty
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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