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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.
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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