Approximately $3.5 billion of debt securities affected
New York, February 12, 2008 -- Moody's Investors Service placed the long-term ratings of
Union Electric Company (d/b/a AmerenUE, Baa1 Issuer Rating) under
review for possible downgrade. Union Electric's Prime-2
rating for commercial paper is affirmed. Moody's affirmed
the ratings of Ameren Corporation (Ameren, Baa2 Issuer Rating and
Prime-2 rating for commercial paper) and AmerenEnergy Generating
Company (AmerenGenco, Baa2 senior unsecured) but changed their rating
outlooks to negative from stable. Moody's affirmed the ratings
of Central Illinois Public Service Company (d/b/a AmerenCIPS, Ba1
Issuer Rating); CILCORP Inc. (Ba1 Corporate Family Rating);
Central Illinois Light Company's (d/b/a AmerenCILCO, Ba1 Issuer
Rating), and Illinois Power Company (d/b/a AmerenIP, Ba1 Issuer
Rating) and maintained a positive rating outlook on these four subsidiaries.
The review of Union Electric's ratings is prompted by declining
cash flow coverage metrics; increased operating costs; higher
capital expenditures for environmental compliance and transmission and
distribution system investment; and significant regulatory lag in
the recovery of these costs. "The utility's ratio of
cash flow pre-working capital to debt has fallen over the last
several years from 31% in 2004 to 20% for the twelve months
ended 9/30/07. Continued deterioration of cash flow coverage metrics
would not be consistent with its current Baa1 rating", said
Michael G. Haggarty, Vice President and Senior Credit Officer.
The review will focus on the utility's plans to finance these capital
expenditures; the impact on credit metrics going forward; the
likelihood that regulatory lag will diminish over time; and the potential
for increased regulatory supportiveness in Missouri, including the
implementation of fuel, purchased power, and environmental
cost adjustment clauses. Moody's does not expect the review
to result in more than a one-notch downgrade of Union Electric's
The negative outlook on the rating of AmerenGenco reflects its position
as a predominantly coal generating company that is likely to be seriously
affected by more stringent environmental regulations, including
a potential cap or tax on carbon emissions. Although AmerenGenco's
financial metrics could improve over the near-term as a result
of the recent expiration of some below market affiliate contracts,
the company's business risk has also increased as it now operates
solely as a merchant generator. AmerenGenco will be making substantial
investments to meet environmental compliance mandates over the next few
years, that Moody's expects will require higher debt financing,
and which is likely to pressure cash flow coverage and balance sheet metrics.
New controls on carbon emissions, the timing of which is uncertain,
could further pressure the generating company's margins over a longer
term. Depending on the magnitude of these environmental requirements,
financial metrics may not remain strong enough to maintain credit ratings
at its current Baa2 level.
The negative outlook on the ratings of Ameren, the parent company,
reflects the declining metrics, significant capital expenditures,
and regulatory lag facing its largest utility subsidiary, Union
Electric; as well as the higher business risk and increasing capital
expenditure requirements at its major unregulated generating subsidiary,
AmerenGenco. "With two of Ameren's major subsidiaries
facing cost pressures and rising capital expenditure requirements,
dividends upstreamed to the parent company could be negatively affected
going forward", said Haggarty. This is of particular
concern given the high dividend payout ratio at the parent company,
which was over 90% in 2006 and during the twelve months ended 9/30/07.
Although Moody's maintains a positive rating outlook on Ameren's
Illinois utility subsidiaries, any upward ratings action with respect
to these subsidiaries is likely to be modest and highly dependent on supportive
outcomes of pending distribution rate cases and the successful implementation
of new power procurement policies and procedures in Illinois.
Ratings placed under review for possible downgrade include:
Union Electric's A3 senior secured, Baa1 Issuer Rating,
Baa2 subordinated, and Baa3 preferred stock.
Ratings affirmed with a negative outlook include:
Ameren's Baa2 Issuer Rating;
AmerenGenco's Baa2 senior unsecured.
Ratings affirmed with a positive outlook include:
Central Illinois Public Service Company's Baa3 senior secured debt,
Ba1 Issuer Rating, and Ba3 preferred stock;
Illinois Power Company's Baa3 senior secured debt, Ba1 Issuer Rating,
and Ba3 preferred stock.
CILCORP, Inc.'s Ba1 Corporate Family Rating and Ba2
senior unsecured debt (LGD5, 79%);
Central Illinois Light Company's Ba1 Issuer Rating;
Central Illinois Light Company's Ba1 preferred stock (LGD4,
CILCORP's Probability of Default Rating at Ba1.
Ratings affirmed with a positive outlook/LGD assessments revised:
Central Illinois Light Company's senior secured debt at Baa2 (LGD2,
15%) from Baa2 (LGD2, 14%).
Ratings and Loss Given Default assessments for CILCORP and its subsidiary
Central Illinois Light Company have been determined in accordance with
Moody's Loss-Given Default Methodology. More information
on this methodology can be found at moodys.com/lgd.
Ameren Corporation is a public utility holding company headquartered in
St. Louis, Missouri. It is the parent company of Union
Electric Company (d/b/a AmerenUE), Central Illinois Public Service
Company (d/b/a AmerenCIPS), CILCORP Inc., Central Illinois
Light Company (d/b/a AmerenCILCO), Illinois Power Company (d/b/a
AmerenIP), and AmerenEnergy Generating Company.
Michael G. Haggarty
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
William L. Hess
Corporate Finance Group
Moody's Investors Service