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18 Jan 2008
Moody's changes outlook on Duke Energy to stable
Approximately $15 Billion of Debt Securities and Bank Credit Facilities Affected
New York, January 18, 2008 -- Moody's Investors Service changed the rating outlook on Duke Energy
Corporation (Duke Energy: Baa2 Long Term Issuer rating), Duke
Energy Carolinas (Duke Carolina: A3 senior unsecured), Cinergy
Corporation (Cinergy, Baa2 senior unsecured); Duke Energy Ohio
(Duke Ohio: Baa1 senior unsecured) and Duke Energy Kentucky (Duke
Kentucky: Baa1 senior unsecured) to stable from positive.
The rating outlook for Duke Energy Indiana (Duke Indiana: Baa1 senior
unsecured) remains stable. In addition, Moody's has
affirmed the Baa2 Long term issuer rating for Duke Energy, the A3
Long Term issuer rating for Duke Carolinas, the Baa2 long Term Issuer
rating for Cinergy, and the Baa1 senior unsecured rating for Duke
Ohio, Duke Kentucky and Duke Indiana.
The stable rating outlook reflects the strong financial profile of Duke
Energy and its rate-regulated utility subsidiary companies,
which represent approximately 85% of consolidated cash flows and
the reasonable diversification among regulatory jurisdictions (all of
whom are viewed as being relatively supportive to credit). The
stable rating outlook reflects Duke Energy's substantial capital
investment plans, as well as the company's expectations to
finance those investments largely with debt; the non-regulated
investments (in Latin America, Crescent and wind power development)
which we believe will be incrementally increasing over the intermediate
term horizon, and the current intervention being experienced in
Ohio, which we believe will be resolved in the near-term
through a collaborative process with no materially negative implications
for Duke Ohio's credit quality.
Duke Energy's primarily rate-regulated operations coupled
with the regulatory jurisdictions with which it operates provide a strong
foundation for the credit as evidenced by today's strong financial
profile which positions the company well within the broad Baa-rating
category. The positive rating outlook, which was originally
assigned in April 2006, largely incorporated a view that the financial
performance would improve over the next several years. Given the
company's September 2007 announcement regarding its capital investment
plan and the intention to finance that plan largely with debt, Duke
Energy's key financial credit metrics are no longer expected to
improve and, most likely, will deteriorate over the next few
years. This financial metric erosion is most notable at Duke Carolinas,
which we believe will represent a majority of the capital investment plans
over the near term. Duke Carolinas represents almost 50%
of consolidated revenues, and approximately 50% of consolidated
The stable rating outlook for Cinergy, Duke Ohio, Duke Kentucky
and Duke Indiana reflect our expectations that the financial profile for
those entities will also not improve, but will remain reasonably
stable over the near to intermediate term horizon; that the Ohio
regulatory / legislative intervention will be resolved without any material
negative consequences to Duke Ohio; and that the over all regulatory
environments in Ohio, Indiana and Kentucky will remain relatively
supportive over the intermediate term horizon.
Although all existing ratings have been affirmed, Moody's
is concerned with Duke Energy's overall liquidity profile,
which we find to be inadequate unless we assume unfettered access to the
capital markets. In our opinion, Duke Energy's $2.65
billion master credit facility (approximately $1.5 billion
of which remains available) plus approximately $1.7 billion
of cash on hand (including the proceeds from a recent debt offering at
Duke Carolinas) coupled with $3.0 billion of expected cash
flow generation over the next twelve months will be insufficient to meet
the company's $5.0 billion in capital expenditures,
$1.1 billion of estimated common dividends and approximately
$1.5 billion of scheduled debt maturities leaving an estimated
cash shortfall of $1.4 billion.
Headquartered in Charlotte, North Carolina, Duke Energy is
a parent holding company with vertically integrated electric and gas utility
operations serving approximately 4 million customers across five states.
In addition, Duke Energy has a large investment in a portfolio of
wholesale electric generation assets in Latin America, an investment
in a real estate development company and other, small non-regulated
investments. As of the twelve months ended September 2007,
Duke Energy had total assets of approximately $50 billion and operating
revenues of approximately $17 billion.
William L. Hess
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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