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Rating Action:

Moody's Downgrades KCPL; Affirms Ratings of Great Plains Energy and GMO; Outlook Stable

12 Mar 2010

New York, March 12, 2010 -- Moody's Investors Service today downgraded the senior unsecured rating of Kansas City Power and Light (KCPL) one notch to Baa2 from Baa1, and affirmed KCPL's A3 senior secured rating, and Prime -2 short-term commercial paper rating. At the same time Moody's affirmed KCPL's parent, Great Plains Energy Incorporated (Great Plains) at Baa3 senior unsecured, and its operating subsidiary, KCPL Greater Missouri Operations (GMO) at Baa3 senior unsecured. The rating outlooks at Great Plains, KCPL, and GMO were all changed to stable from negative.

KCPL's operating results in 2009 were challenged by weakness in the Missouri economy as well as atypically cool summer weather. Although there was modest improvement in credit metrics during the year we believe the credit profile of KCPL looking prospectively is more reflective of the Baa2 rating category given the challenges the company has faced in executing its two Iatan construction programs. The key issues in stabilizing the outlook for the ratings in our view, are related; successfully transition of Iatan 2 to rate base, and continued improvement in the credit metrics.

At year-end 2009, Great Plains reported $1.5 billion of construction work in progress on its balance sheet (18% of the company's total assets). A large component of that is attributable to KCPL, and principally related to the construction of Iatan 2, an 850MW supercritical coal plant nearing completion in Weston, Missouri (Great Plains' electric operations own 73% of the project). Because the project's ultimate cost will be higher than its initial estimate and will likely be placed into service two months behind schedule the risk of some regulatory disallowance is heightened. Offsetting this risk to some extent is the fact that in 2005 Great Plains and the Missouri Public Service Commission agreed on a framework under which the prudence of construction would be viewed and that a modest portion of construction costs have already been recovered under the "additional amortization" component of rates.

Nevertheless, the regulatory lag associated with recovery of the sizable capital investment cited above continues to pressure credit metrics. With one key metric, CFO (pre-w/c) to debt, we would expect to see utility issuers in the "Baa" range demonstrate results between 12%-22%. In 2009, Great Plains and KCPL reported just 11% and 15%, respectively, which are levels considered soft for the ratings, particularly for KCPL. In affirming the ratings and stable outlook at this time we consider that in 2010 the company, on a consolidated basis, will receive a full year's benefit from approximately $218 million of rate increases that became effective in Q3-2009, and that further improvement is possible in 2011 given reasonable outcomes of recent rate filings in Kansas and Missouri. The affirmation of KCPL's A3 senior secured rating is consistent with Moody's implementation of a widening of the notching between most senior secured debt ratings and the senior unsecured debt ratings or Issuer Ratings of investment grade regulated utilities to two notches from one previously last year. See Moody's press release dated August 3, 2009

In 2010 we expect negative free cash flow at both Great Plains and KCPL due to the continued elevated level of capital expenditures; however, we believe the company will maintain a comfortable level of external liquidity for meeting its needs in the near term. At December 31, 2009, Great Plains reported total company availability under its credit lines of $902 million. We continue to maintain a Prime -2 short-term rating at KCPL where the company's $600 million commercial paper program is fully backstopped by a $600 million credit facility expiring in May 2011. Longer-term, we note the company has a series of large debt maturities to address from 2011-2012 (approximately $984 million in total).

The last rating actions on Great Plains, KCPL, and KCPL GMO occurred on March 11, 2009, when the respective ratings for each of the entities were downgraded one notch with a negative outlook. The principal methodology used in rating these issuers is "Regulated Electric & Gas Utilities", published in August 2009, and available on 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.

Headquartered in Kansas City, Missouri, Great Plains Energy is an electric utility holding company. Through its primary operating subsidiaries, Kansas City Power and Light Company, and KCPL GMO, it is primarily engaged in providing the generation, transmission, distribution and supply of electricity to approximately 820 thousand customers in Missouri and eastern Kansas.

New York
James O'Shaughnessy
Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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