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Global Credit Research - 08 Sep 2010
New York, September 08, 2010 -- Moody's Investors Service has assigned a Ba1 rating to Duquesne
Light Holding's planned offering of new senior unsecured notes.
At the same time Moody's affirmed the ratings and stable outlooks
of Duquesne Light Holdings, Inc. (DLH) and its regulated
electric utility subsidiary, Duquesne Light Company (DLC).
Ratings assigned include
- Duquesne Light Holdings senior unsecured notes due 2020,
Ba1; stable outlook
Ratings affirmed include:
- Duquesne Light Holdings, all senior unsecured, Ba1;
- Duquesne Light Company, all senior secured, A3;
- Duquesne Light Company, Issuer Rating at Baa2; stable
- Duquesne Light Company, all preferred stock at Ba1;
DLH's senior unsecured rating of Ba1 reflects the benefits of ownership
of DLC but also considers the significant amount of debt that resides
at the parent holding-company level as well as its structural and
contractual subordination to debt at DLC. DLH's dependence on cash
flows from DLC to service debt and pay equity distributions to investors
is also a significant consideration in the rating. In terms of
credit metrics DLH's recent operating results continue to remain appropriate
for the Ba1 rating category.
DLC is the core of DLH's earnings and cash flow and its unsecured issuer
rating of Baa2 reflects the company's solid credit metrics and relatively
stable, regulated business model. DLC is regulated by FERC
and at the state level by the Pennsylvania Public Utility Commission ("PUC"),
a jurisdiction considered to be generally credit supportive. The
rating also considers DLC's obligations as a provider of last resort (POLR)
in Pennsylvania, a de-regulated state open to retail electric
On May 20, 2010, the Pennsylvania Public Utility Commission
(PUC) approved DLC's plan to provide fixed-price default
service to residential customers for the period Jan-2011 through
May-2013. Unlike other pure transmission and distribution
utilities, DLC continues to retain an element of risk with the new
POLR V plan as power supply is not a direct pass-through and the
company must carefully hedge its obligations though the POLR period.
Additionally, to the extent power prices decline the company is
subject to "switching risk" given customer choice availability
in PA. Additionally, we observe that on July 20, 2010,
DLC filed its first rate case since 2007; requesting an increase
in distribution rates of $87.3 million (9.77 percent
The notching differential between DLH and DLC continues to reflect the
significant level of parent holding-company debt, and the
structural and contractual subordination to debt at the company's
core regulated electric utility operating subsidiary, DLC,
and DLH's primary dependence on cash flows from DLC. Debt
at the holding company (approximately 75% of consolidated debt
at June 30, 2010) will continue to be structurally and contractually
behind the secured debt at DLC, where approximately 70% of
the cash from operations was generated in 2009.
The company's liquidity is acceptable. On a consolidated basis,
the company maintains bank lines at the parent ($200 million) and
operating company level ($75 million). However, somewhat
potentially restrictive is that the revolving facilities both contain
material adverse event clauses for any draw-downs (both expire
May 31, 2012). We note that the parent has, in the
past, made intercompany advances to the operating company and given
the flexibility with respect to dividend policy we look towards the consolidated
liquidity profile of the company. At June 30, 2010,
the company reported $87 million of cash on hand and nothing drawn
under the bank lines. This availability should comfortably meet
their operational needs with just modest external financing required for
The stable outlook for DLH and DLC reflects Moody's expectations that
going forward there will be no material change to the capital structure
and that DLH will continue to benefit from the relatively healthy credit
profile of its regulated operating subsidiary, DLC. The announced
planned sale by one DLH's largest shareholder, DUET Investment
Holdings Limited (28.95%), is not expected to have
a negative impact on the rating.
Negative pressure on credit metrics, particularly DLH's retained
cash flow / debt metric could place pressure on the ratings. There
would be similar negative pressure should CFO (pre w/c) to consolidated
debt fall into the mid-single digit percentage range for an extended
The principal methodology used in rating Duquesne Light Holdings was Regulated
Electric and Gas Utilities published in August 2009. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found on Moody's website.
Headquartered in Pittsburgh, Pennsylvania, Duquesne Light
Holdings Inc. is an electric utility holding company owned by an
investor consortium led by Macquarie Infrastructure Funds and Diversified
Utility Energy Trust. Revenue for the year ended December 31,
2009 was $1.1 billion. Its primary operating subsidiary,
Duquesne Light Company, is primarily engaged in providing transmission,
distribution and supply of electricity to approximately 588 thousand customers
in Southwestern Pennsylvania.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
confidential and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Infrastructure Finance Group
Moody's Investors Service
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba1 Rating to Duquesne's Senior Unsecured Notes; Outlook Stable
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