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Rating Action:

Moody's Places Great Plains Energy on Review for Downgrade; Westar Energy, Kansas City Power & Light and KCP&L Greater Missouri Operations Affirmed; Outlooks Stable

31 May 2016

New York, May 31, 2016 -- Moody's Investors Service, ("Moody's") placed the long-term ratings of Great Plains Energy (Great Plains or GXP; see debt list below) on review for downgrade. The review is prompted by today's announcement that Great Plains agreed to acquire Westar Energy for over $12 billion, which includes the assumption of approximately $4 billion of Westar debt. Great Plains said the acquisition financing would include a mix of debt and equity.

At the same time, Moody's affirmed the long-term and short-term ratings of Kansas City Power & Light Company (KCPL), KCP&L -- Greater Missouri Operations Company (GMO) and Westar Energy (Westar) with stable outlooks.

On Review for Downgrade:

..Issuer: Great Plains Energy Incorporated

....Subordinate Shelf, Placed on Review for Downgrade, currently (P)Baa3

....Senior Unsecured Shelf, Placed on Review for Downgrade, currently (P)Baa2

....Pref. Stock Preferred Stock, Placed on Review for Downgrade, currently Ba1

....Subordinate Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

Outlook Actions:

..Issuer: Great Plains Energy Incorporated

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Kansas City Power & Light Company

....Outlook, Remains Stable

..Issuer: Kansas Gas and Electric Company

....Outlook, Remains Stable

..Issuer: KCP&L Greater Missouri Operations Company

....Outlook, Remains Stable

..Issuer: Westar Energy, Inc.

....Outlook, Remains Stable

Affirmations:

..Issuer: Burlington (City of) KS

....Senior Secured Revenue Bonds, Affirmed A2

....Underlying Senior Secured Revenue Bonds, Affirmed A2

....Senior Unsecured Revenue Bonds, Affirmed Baa1

....Underlying Senior Unsecured Revenue Bonds, Affirmed Baa1

..Issuer: Kansas City Power & Light Company

.... Issuer Rating, Affirmed Baa1

....Senior Secured Shelf, Affirmed (P)A2

....Senior Unsecured Shelf, Affirmed (P)Baa1

....Senior Secured First Mortgage Bonds, Affirmed A2

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Issuer: Kansas Gas and Electric Company

.... Issuer Rating, Affirmed Baa1

....Senior Secured First Mortgage Bonds, Affirmed A2

....Senior Secured Shelf, Affirmed (P)A2

..Issuer: KCP&L Greater Missouri Operations Company

.... Issuer Rating, Affirmed Baa2

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

....Senior Unsecured Shelf, Affirmed (P)Baa2

..Issuer: La Cygne (City of) KS

....Senior Secured Revenue Bonds, Affirmed A2

....Underlying Senior Secured Revenue Bonds, Affirmed A2

....Senior Secured Revenue Bonds, Affirmed VMIG 2

..Issuer: Missouri Env. Imp. & Engy. Res. Auth.

....Senior Secured Revenue Bonds, Affirmed A2

..Issuer: State Env. Improv. and Energy Res. Auth. MO

....Senior Unsecured Revenue Bonds, Affirmed Baa1

..Issuer: Wamego (City of) KS

....Senior Secured Revenue Bonds, Affirmed A2

....Underlying Senior Secured Revenue Bonds, Affirmed A2

..Issuer: Westar Energy, Inc.

.... Issuer Rating, Affirmed Baa1

....Senior Secured Bank Credit Facility, Affirmed A2

....Senior Secured First Mortgage Bonds, Affirmed A2

....Senior Unsecured Commercial Paper, Affirmed P-2

RATINGS RATIONALE

"Great Plains is sacrificing its strong financial profile to acquire its neighbor," said Ryan Wobbrock, Vice President -- Senior Analyst. "This is a bigger is better merger, where Westar will help Great Plains double its assets. But, the financing plan will triple its debt, leaving little financial flexibility and is indicative of management's higher tolerance for financial risk."

The addition of approximately $4.4 billion of parent-level acquisition debt is likely to result in a one-notch downgrade, to Baa3, for Great Plains. The review period will be focused on several risk factors that Moody's sees beyond the added leverage, including: various regulatory reviews and approval proceedings; the potential for, and magnitude of, customer benefits required to close the transaction; execution of the financing plan, including equity and hybrid issuances; and any differences between the parent company's cash inflows and outflows, where subsidiary upstream dividends are insufficient to cover all of the parent company's dividend and interest expense obligations.

From a strategic perspective Moody's sees Westar as a natural fit for Great Plains, given overlapping service territories and a shared ownership of the 1,170 mega-watt Wolf Creek nuclear generation facility. Utilities with contiguous service territories tend to produce higher operating cost synergies. The primary credit benefit in acquiring Westar, is that Great Plains increases its exposure to the Kansas regulatory environment. Today, Moody's views the Kansas Corporation Commission (KCC) to be slightly more supportive to long-term credit quality than the Missouri Public Service Commission (MPSC), because Kansas provides a higher use of expense tracking mechanisms and the ability to file abbreviated rate cases for significant capital expenditures.

Moody's also sees the benefit of Westar bringing an additional $1.2 billion of Federal Electric Regulatory Commission (FERC) regulated transmission rate base. We view FERC as the most supportive regulatory jurisdiction in the US, due to forward looking, formula rates and relatively high allowed ROEs.

The acquisition debt will increase the percentage of parent holding company debt to total consolidated debt from a negligible 2% to over 35% at the transaction closing, which Moody's thinks will take about 12 months. The higher amount of parent holding company leverage will likely result in a wider rating-notch differential between the ratings of Great Plains and its principal utility subsidiaries, which include Kansas City Power & Light, Kansas Gas & Electric and Westar, and a weighted average rating of Baa1 senior unsecured.

The transaction's financing plans are viewed as a signal that Great Plains' management and board of directors have a higher risk tolerance for leverage than previously considered, which is a long-term credit negative. With little financial cushion, Great Plains will be more exposed to risks associated with successfully executing a transition and integration plan and longer-term issues, such as waning regulatory support and softening of regional macro-economic fundamentals.

At this time, Moody's expects no more than a one-notch downgrade for Great Plains, which would place its ratings in the Baa3 rating category, down from the Baa2 rating category. Pro-forma the acquisition, Moody's calculates a ratio of cash flow from operations to debt around the 13% range, down from the 17% that Great Plains produced for the twelve months ended March 2016.

The affirmation of KCPL's Baa1 and GMO's Baa2 ratings reflect the improving financial performance of each utility. This financial improvement is driven by the conclusion of extensive capital expenditures at each utility, which have been in progress for the past several years and were designed to help meet environmental compliance standards. Over the next two to three years, these investments should be fully incorporated into rate base, which will improve the cash position and standalone financial metrics of each utility (i.e., cash flow to debt slightly above 20% for KCPL and slightly below 20% for GMO).

The affirmation of the ratings and stable outlook for Westar reflects the maintenance of solid cash flow to debt metrics around 20% despite a robust capital plan to add wind generation to its supply portfolio over the next two years.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ryan Wobbrock
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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