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16 Nov 2009
Assigns Baa2 Rating to $950 Million of New Progress Energy Senior Notes
New York, November 16, 2009 -- Moody's affirmed the ratings and stable rating outlooks of Progress
Energy, Inc. (Baa2 senior unsecured); Progress Energy
Florida, Inc. (A3 senior unsecured) and Progress Energy Carolinas,
Inc. (A3 senior unsecured). Moody's assigned a Baa2
rating to $950 million of new Progress Energy senior unsecured
notes that are being issued to retire $100 million of long-term
debt due in January 2010; to repay outstanding commercial paper;
to pre-fund a portion of the $700 million of long-term
debt due in March 2011; and for general corporate purposes.
The affirmation of the Baa2 rating of Progress Energy considers its low
business risk profile as the holding company for two vertically integrated,
regulated utilities in the Southeast operating in historically constructive
regulatory environments. Progress Energy divested a range of unregulated
businesses several years ago, using the proceeds of these sales
in part to pay down debt at the parent company level. A $750
million parent company debt issuance earlier this year combined with the
current $950 million senior note issue has reversed this trend
as debt at the parent company will increase from approximately 23%
of total consolidated Progress Energy debt at December 31, 2008
to nearly 35%. The two notch differential between Progress
Energy's Baa2 senior unsecured rating and the A3 senior unsecured
ratings of its two utilities reflects both the structural subordination
and the sizable amount of this parent company debt. The ratings
affirmation also considers Progress Energy's stable financial metrics,
including CFO pre-working capital plus interest to interest of
3.6x and CFO pre-working capital to debt of 16.2%
for the twelve months ended September 30, 2009, which are
adequate to support its Baa2 rating, particularly considering the
relatively low business risk profile and completely regulated businesses.
The affirmation of the ratings of Progress Energy Florida reflects the
traditionally constructive regulatory environment for electric utilities
in Florida, notwithstanding the highly politicized atmosphere surrounding
the company's current rate case. The rate case was filed
during a period of challenging economic conditions in Florida, which
has begun to lose population recently, contributing to weak sales
volumes and revenues at Progress Energy Florida. A decision on
the rate case has been postponed to January from this month, a potential
credit negative, after two new commissioners recently appointed
by the Governor are able to vote.
Although political intervention in the regulatory process is generally
detrimental to utility credit quality, Moody's will evaluate
the ratings and stable outlook of the utility after the final rate case
outcome is decided by the newly constituted Florida Public Service Commission
in January. If Moody's believes the regulatory environment
for investor owned utilities in Florida has become materially less constructive
following the rate case outcome, or if the outcome results in rate
relief that is insufficient to maintain the utility's cash flow
coverage metrics at or close to historical levels, the ratings and/or
outlooks of Progress Energy Florida and potentially the parent company,
Progress Energy, could be pressured.
The affirmation of the ratings of Progress Energy Carolinas considers
financial metrics that are strong for its rating, including CFO
pre-working capital plus interest to interest of 5.8x and
CFO pre-working capital to debt of 28.3% for the
twelve months ended September 30, 2009. The utility operates
in two relatively supportive regulatory jurisdictions in both North and
South Carolina with an authorized ROE of 12.75% in both
states and adjustments for fuel, purchased power, and environmental
costs. Although the utility has a large capital expenditure program
for environmental compliance, as well as for generation, transmission
and distribution improvements and expansions, Moody's expects
the utility to be able to adequately manage these capital expenditures
and maintain financial metrics at levels supportive of its current rating.
The last rating action on Progress Energy was on August 31, 2006,
when its rating outlook changed to stable from negative. The last
rating action on Progress Energy Carolinas and Progress Energy Florida
was on August 3, 2009, when their senior secured ratings were
raised to A1 from A2.
The principal methodology used in rating these issuers was Regulated Electric
and Gas Utilities, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Progress Energy is holding company for regulated utilities Progress Energy
Carolinas and Progress Energy Florida and is headquartered in Raleigh,
North Carolina.
New York
William L. Hess
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
Moody's Affirms Progress Energy and Subsidiary Ratings/Outlooks
No Related Data.
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