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Rating Action:

MOODY'S RATINGS OF FOUR ELECTRICS UNDER REVIEW WITH DIRECTION UNCERTAIN AS MIDAMERICAN BID COMPLICATES MERGER PLANS

05 Aug 1996
MOODY'S RATINGS OF FOUR ELECTRICS UNDER REVIEW WITH DIRECTION UNCERTAIN AS MIDAMERICAN BID COMPLICATES MERGER PLANS New York, 8/5/1996 -- Moody's Investors Service placed the credit ratings of MidAmerican Energy Company (senior secured A2) on review with direction uncertain, following an announcement by MidAmerican that it plans to acquire IES Industries, an electric and gas utility serving central Iowa, for a combination of stock and cash valued at $1.17 billion. Additionally, Moody's changed to uncertain the direction of its credit review of Wisconsin Power & Light Company (senior secured Aa2), IES Utilities Company (senior secured A2), and Interstate Power Company (senior secured. A1), which had previously agreed to combine under a definitive three-way merger agreement executed in late 1995. Both WPL and IP had been placed under review for possible downgrade and IES had been placed under review for possible upgrade following the merger announcement in late 1995.
The review will focus initially on the outcome of the two competing merger proposals. Once this has been resolved, Moody's will evaluate potential merger savings and the allocation of any such savings between the companies and their ratepayers. Additionally, Moody's will evaluate the financial impact of additional leverage that may be utilized in order to consummate the transaction.
According to Moody's, MidAmerican's merger proposal is likely to become hostile if the board of IES rejects its offer. MidAmerican has offered to pay a premium of 21% over the implied value of the WPL proposal. If successful, MidAmerican has indicated that it could save more than $500 million over the first 10 years and raise additional cash from the sale of non-regulated assets. However, it would need to borrow up to $500 million to fund the cash portion of its offer. This additional leverage could place downward pressure on the company's coverage ratios. Current rate proceedings pertaining to MidAmerican's prior merger completed last summer could also adversely impact credit ratings.
With regard to the other companies, WPL, IES, and IP, the proposal by MidAmerican to acquire IES creates uncertainty with respect to their efforts to achieve a three-way combination. In the event that MidAmerican is successful, there would likely be no change in the ratings of IP or WPL.
Under review with direction uncertain are:
MidAmerican Energy Company--first mortgage bonds, general mortgage bonds, and secured pollution control bonds, rated A2; shelf registration for first mortgage and general mortgage bonds, rated (P)A2; unsecured pollution control bonds, rated A3; preferred stock, rated "a3"; and the company's A3 counterparty rating. MidAmerican's Prime-1 short-term rating is also under review.
Wisconsin Power & Light Company (WPL) --first mortgage bonds and secured pollution control bonds, rated Aa2; shelf registration for first mortgage bonds, rated (P)Aa2; preferred stock, rated "aa3"; and the company's counterparty rating of Aa3.
Interstate Power Company (IP) --first mortgage bonds, rated A1; unsecured pollution control bonds, rated A2; preferred stock, rated "a2"; and the company's A2 counterparty rating.
IES Utilities (IES) -- first mortgage bonds, rated A2; shelf registration for first mortgage bonds, rated (P)A2; secured pollution control bonds, rated A2; unsecured pollution control bonds, rated A3; shelf registration for senior unsecured debt, rated (P)A3; shelf registration for junior subordinated unsecured debt, rated (P)Baa1; and the A3 counterparty rating. In addition, the company's Prime-1 short-term rating is under review.
The Prime-1 short-term ratings of WPL and IP are not under review.
The MidAmerican proposal will require various regulatory approvals, including the Iowa and Illinois state public utility commissions, the Federal Energy Regulatory Commission, and the Nuclear Regulatory Commission,. This will delay completion of any deal for a period of at least 12 months.
MidAmerican, IES, and IP are combination electric and gas utilities serving customers in the state of Iowa. WPL is a combination electric and gas utility headquarted in Madison, Wisconsin.


end


No Related Data.
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