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Rating Action:

Moody's Upgrades Black Hills to Baa2; Maintains Positive Outlook

25 Sep 2013

Approximately $1.3 billion of debt affected

New York, September 25, 2013 -- Moody's Investors Service today upgraded the senior unsecured ratings of Black Hills Corp. (BHC) to Baa2 from Baa3 and the issuer rating of Black Hills Power (BHP) to Baa1 from Baa2. In addition, Moody's is maintaining the positive rating outlook for both companies.

Upgrades:

..Issuer: Black Hills Corporation

.... Issuer Rating, Upgraded to Baa2 from Baa3

....Multiple Seniority Shelf, Upgraded to (P)Ba1 from (P)Ba2

....Multiple Seniority Shelf, Upgraded to (P)Baa3 from (P)Ba1

....Multiple Seniority Shelf, Upgraded to (P)Baa2 from (P)Baa3

....Senior Unsecured Bank Credit Facility Feb 1, 2017, Upgraded to Baa2 from Baa3

....Senior Unsecured Regular Bond/Debenture May 15, 2014, Upgraded to Baa2 from Baa3

....Senior Unsecured Regular Bond/Debenture Jul 15, 2020, Upgraded to Baa2 from Baa3

..Issuer: Black Hills Power, Inc.

.... Issuer Rating, Upgraded to Baa1 from Baa2

....Senior Secured First Mortgage Bonds Nov 1, 2039, Upgraded to A2 from A3

....Senior Secured First Mortgage Bonds Aug 15, 2032, Upgraded to A2 from A3

....Senior Secured Shelf, Upgraded to (P)A2 from (P)A3

..Issuer: Campbell (County of) WY

....Senior Unsecured Revenue Bonds Oct 1, 2014, Upgraded to Baa1 from Baa2

....Senior Unsecured Revenue Bonds Oct 1, 2024, Upgraded to Baa1 from Baa2

..Issuer: Gillette (City of) WY

....Senior Unsecured Revenue Bonds Jun 1, 2024, Upgraded to Baa1 from Baa2

....Senior Unsecured Revenue Bonds Jul 1, 2024, Upgraded to Baa1 from Baa2

..Issuer: Pennington (County of) SD

....Senior Unsecured Revenue Bonds Oct 1, 2014, Upgraded to Baa1 from Baa2

..Issuer: Weston (County of) WY

....Senior Unsecured Revenue Bonds Oct 1, 2014, Upgraded to Baa1 from Baa2

Outlook Actions:

..Issuer: Black Hills Corporation

....Outlook, Remains Positive

..Issuer: Black Hills Power, Inc.

....Outlook, Remains Positive

RATINGS RATIONALE

"The upgrade for Black Hills Corp primarily reflects the reduced risk in the company's business profile associated with the exit or divestiture of several non-core operations, and the corresponding fall in consolidated debt levels" said Assistant Vice President Ryan Wobbrock. "The positive outlook reflects a sustained improvement in the financial metrics following additional rate cases and the successful completion of generation construction through 2014" Wobbrock added.

BHC's rating has historically been constrained by the company's exposure to a significant amount of higher risk and more volatile unregulated operations which raised the company's financial metric threshold to maintain an investment grade rating. Today, following the divestiture of its trading and marketing business and the sale of a portion of exploration and production (E&P) assets in 2012, BHC's ratio of cash flow from operations before changes in working capital (CFO pre-WC) to debt is over 20% (excluding the effects of bonus depreciation). Moody's incorporates a view that BHC will be successful in maintaining this ratio near the 20% range for a sustained period of time, which will position BHC strongly within its Baa2 rating category.

BHP has similarly exhibited a strong financial profile in recent years, including average CFO pre-WC to debt over 20% since 2010. Although the impacts of bonus depreciation have boosted these levels by around 200 basis points, annually, BHP's ongoing cash flow generation and slightly improved recovery provisions (e.g., allowed recovery of construction work in process in South Dakota) is more reflective of a vertically integrated utility in the Baa1 category. BHP's positive outlook recognizes the prospects for further financial improvement following the placement of additional generation and transmission assets into rate base through 2014.

What Could Change the Rating -- UP

BHC's rating could be upgraded if the company were to display financial metrics of CFO pre-WC to debt nearing 20% and CFO pre-WC less dividends (RCF) to debt over 14%, for a sustainable period and absent the effects of one-time tax benefits. Additionally, further de-risking and deleveraging activities, similar to those that the company enacted in 2012 (i.e., sale of E&P assets with commensurate debt reduction), could lead to ratings upgrades.

BHP would experience upward ratings pressure from significant improvements to cost recovery provisions implemented in South Dakota, and/or from exhibiting sustainable CFO pre-WC to debt over 25% without the one-time tax benefits of policies such as bonus depreciation.

What Could Change the Rating -- Down

Considering the upgrade and positive outlook, it is unlikely that either BHC or BHP would be downgraded over the near-term, absent event risk, severe regulatory treatment, or a change in management philosophy that is not currently incorporated into the rating; such as increasing investment in unregulated operations.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in August 2009. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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 T Wobbrock
Asst Vice President - Analyst
Infrastructure 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

Moody's Upgrades Black Hills to Baa2; Maintains Positive Outlook
No Related Data.
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