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09 Apr 2010
Approximately $4.5 Billion of Debt Securities Downgraded
New York, April 09, 2010 -- Moody's Investors Service downgraded the ratings of Progress Energy
Florida, Inc. (senior secured to A2 from A1; senior
unsecured to Baa1 from A3) and confirmed the ratings of its parent company,
Progress Energy, Inc (Baa2 senior unsecured, Prime-2
short-term rating for commercial paper). The rating outlooks
of Progress Energy and Progress Energy Florida are stable. Moody's
affirmed Progress Energy Florida's Prime-2 short-term
rating for commercial paper and the ratings and stable outlook of Progress
Energy Carolinas, Inc. (A3 senior unsecured). This
rating action concludes the review for downgrade of the ratings of Progress
Energy and Progress Energy Florida initiated on January 19, 2010.
"The downgrade of the ratings of Progress Energy Florida reflects
the recent decline in the political and regulatory environment for investor
owned utilities in Florida and continued challenging economic conditions
in its service territory, especially related to the Florida housing
market," said Michael G. Haggarty, Vice President
and Senior Credit Officer.
Progress Energy Florida's most recent rate case was negatively affected
by delays, controversy, and political interference in the
regulatory process. After requesting a $499 million base
rate increase and a 12.5% return on equity, the company
received a $132 million increase that had been granted earlier
to recover costs related to a Florida Public Service Commission approved
plant repowering, and a 10.5% return on equity.
Because of these developments, Moody's now views the company's
regulatory environment as less supportive and predictable than it has
been historically, increasing the company's regulatory risk
profile. Mitigating this higher risk are declining capital expenditures
at the Florida utility, including at least a 20 month delay in plans
to pursue new nuclear construction at its Levy County plant site.
The downgrade also reflects the severe economic slowdown that has been
experienced in the company's service territory since 2007,
resulting in lower growth rates and lower customer usage than historically.
The difficult economy was a contributing factor in the company's
rate case decision in January, with the FPSC exhibiting sensitivity
to economic conditions in the state throughout the rate proceedings.
Until the Florida economy improves, Moody's believes it will
likely continue to remain an issue in the company's future regulatory
The confirmation of the ratings of parent company Progress Energy considers
the consolidated organization's completely regulated businesses,
its low risk profile, and the diversity provided by its two regulated
utility subsidiaries. The company's other utility subsidiary,
Progress Energy Carolinas, is strongly positioned at its A3 rating,
with strong cash flow coverage metrics and constructive regulatory environments
of North and South Carolina. The strength and stability of PEC
has to some extent mitigated the increased regulatory risk for Progress
Energy at PEF.
Progress Energy's consolidated financial metrics have been adequate
though slightly weak for its Baa2 rating, including CFO pre-working
capital plus interest to interest in the 3.5x range and CFO pre-working
capital to debt in the 15% range. However, Moody's
believes Progress Energy's credit profile is materially stronger
than most utility holding companies at the Baa3 rating level, where
business mix profiles are typically higher risk due to a high proportion
of unregulated businesses. Progress Energy does maintain a high
level of the debt at the parent company level and a high dividend payout,
however, constraining both ratings and credit quality.
The stable outlook on the ratings of Progress Energy reflects the low
business risk profile of its two regulated utility businesses, a
manageable capital expenditure program, constructive regulation
in North and South Carolina, and Moody's expectation the company
will not add any additional leverage at the parent company level and will
gradually moderate its high dividend payout. The stable outlook
on the ratings of Progress Energy Florida reflects Moody's view
that the utility's financial performance and cash flow coverage
metrics will remain adequate for its rating despite the unexpected rate
case decision in January, that strong cost recovery provisions in
Florida will continue to be supportive of credit quality, that capital
expenditures will decline over the next few years, and that new
nuclear plant construction plans will not be accelerated.
The last rating actions on Progress Energy and Progress Energy Florida
were on January 19, 2010, when their ratings were placed under
review for possible downgrade. The last rating action on Progress
Energy Carolinas was on August 3, 2009, when its senior secured
rating was 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 these issuers can also be found in
the Rating Methodologies sub-directory on Moody's website.
Ratings downgraded include:
Progress Energy Florida's senior secured to A2 from A1; senior
unsecured and Issuer Rating, to Baa1 from A3; and preferred
stock rating, to Baa3 from Baa2.
Ratings confirmed include:
Progress Energy's Baa2 senior unsecured and Prime-2 short-term
rating for commercial paper.
Florida Progress Funding Corporation's Baa2 junior subordinated
and the Baa2 preferred stock rating of FPC Capital 1.
Ratings affirmed include:
Progress Energy Florida's Prime-2 short-term rating
for commercial paper;
Progress Energy Carolina's A1 senior secured; A3 senior unsecured
and Issuer Rating; Baa2 preferred stock; and Prime-2
short-term rating for commercial paper.
Progress Energy, Inc. is a holding company for regulated
utilities Progress Energy Carolinas, Inc. and Progress Energy
Florida, Inc. and is headquartered in Raleigh, North
Michael G. Haggarty
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service
Moody's Downgrades Progress Florida to Baa1; Confirms Progress Energy at Baa2
William L. Hess
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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