$1.5 billion of bank credit facilities rated
New York, October 21, 2010 -- Moody's Investors Service assigned an A3 senior unsecured bank facility
rating to a new $750 million credit agreement dated as of October
15, 2010 between Carolina Power & Light Company d/b/a Progress
Energy Carolinas, Inc. and a bank group led by Wells Fargo
Bank, N.A. as Administrative Agent. Moody's
assigned a Baa1 senior unsecured bank credit facility rating to a $750
million credit agreement dated as of October 15, 2010 between Florida
Power Corporation d/b/a Progress Energy Florida, Inc. and
a bank group led by Bank of America, N.A. as Administrative
Agent. Moody's affirmed all ratings of Progress Energy,
Inc., Progress Energy Carolinas, Inc.,
and Progress Energy Florida, Inc., including their
Prime-2 short-term ratings for commercial paper.
The rating outlook of all three entities is stable.
The A3 senior unsecured rating of Progress Energy Carolinas (PEC) reflects
above average regulatory environments in both North and South Carolina
with credit supportive cost recovery mechanisms, strong financial
metrics, and a service territory that is expected to experience
limited growth over the near-term. The utility is in the
midst of a substantial capital expenditure program for new gas-fired
generation, transmission and distribution improvements, as
well as for demand side management, energy-efficiency,
and conservation programs.
The Baa1 senior unsecured rating of Progress Energy Florida (PEF) reflects
a decline in the credit supportiveness of the political and regulatory
environment in Florida over the last year, strong legacy cost recovery
provisions in place, financial metrics that have been variable but
generally adequate for its rating, and difficult economic conditions
in its central Florida service territory. PEF's senior unsecured
rating was downgraded to Baa1 from A3 in April 2010 following highly political
rate case proceedings and a rate case outcome that was unsupportive of
credit quality. The utility has since reached a settlement with
the Florida Public Service Commission that should preclude the need for
additional base rate proceedings through 2012.
PEF's cash flow over the last year has been negatively affected
by the prolonged outage of its Crystal River 3 nuclear unit, which
has been undergoing repairs since damage to the container wall was discovered
during a refueling outage in September 2009. While some repair
and replacement power costs are covered by insurance, the company
expects to recover replacement power costs in excess of insurance coverage
through its fuel cost-recovery clause. As of June 30,
2010, PEF had spent $64 million on repairs and $139
million of replacement power, net of insurance.
Both PEC and PEF's ratings are also constrained to some extent by
the high leverage of the parent company, Progress Energy,
Inc. (Baa2 senior unsecured, stable outlook) which,
at approximately $4.2 billion, represents 33%
of the consolidated organization's total debt.
Both PEC and PEF maintain good liquidity profiles that have been strengthened
by the increase in the size of their bank facilities to $750 million
from $450 million and by the concurrent increase in the size of
their commercial paper programs. The credit facilities do not contain
a material adverse change clause for new borrowings and both contain a
65% debt to capital covenant, which each company is in compliance
with. PEC's capital expenditure program is more substantial
at approximately $1.5 billion annually over the next few
years, while PEF's will be less than it has been historically
at under $1.0 billion in 2010 and declining in both 2011
and 2012. These capital expenditures will be financed with a combination
of internally generated funds and/or debt issuances at the utilities.
The utilities can supplement these liquidity sources with access to Progress
Energy's money pool, which allows the company to more efficiently
allocate cash among the two regulated utility subsidiaries. PEC
has no long-term debt due until 2012 while PEF has $300
million of long-term debt due in 2011, which Moody's
expects will be refinanced.
An upgrade of PEC's ratings could be considered if economic conditions
in PEC's service territory begin to recover, if there is a
significant reduction in parent company debt, or if there is an
improvement in PEC's already strong financial coverage metrics.
A downgrade of PEC could be considered if there are adverse regulatory
developments in either North or South Carolina that would impair the timely
recovery of prudently incurred costs or there is a sustained decline in
financial coverage metrics, including a ratio of CFO before working
capital plus interest to interest below 4.0x or CFO before working
capital to debt below 20%.
An upgrade of PEF's ratings could be considered if there is an improvement
in the political and regulatory environment for investor-owned
utilities in Florida, which may not be evident until the utility
files its next rate case and new commissioners are in place. An
upgrade could also be considered if financial coverage metrics improve,
including a ratio of CFO before working capital plus interest to interest
above 4.5x and CFO before working capital to debt above 22%.
A downgrade of PEF could be considered if the political and regulatory
environment in Florida worsens, if there are significant cost disallowances
or lower earned returns, or if financial metrics weaken from current
levels, including CFO before working capital plus interest to interest
below 3.8x and CFO before working capital to debt remains below
16% for a sustained period.
Carolina Power & Light Company d/b/a Progress Energy Carolinas,
Inc. senior unsecured bank credit facility rating of A3;
Florida Power Corporation d/b/a Progress Energy Florida, Inc.
senior unsecured bank credit facility rating of Baa1.
Progress Energy's Baa2 senior unsecured debt and Issuer Rating and
Prime-2 short-term rating for commercial paper;
Carolina Power & Light Company d/b/a Progress Energy Carolinas'
A1 senior secured debt, A3 senior unsecured debt and Issuer Rating,
Baa2 preferred stock, and Prime-2 short-term rating
for commercial paper;
Florida Power Corporation d/b/a Progress Energy Florida's A2 senior
secured debt, Baa1 senior unsecured debt and Issuer Rating;
Baa3 preferred stock, and Prime-2 short term rating for commercial
Florida Progress Funding Corporation's Baa2 junior subordinated
FPC Capital 1's Baa2 preferred stock.
Progress Energy, Inc. is a holding company for regulated
utilities Carolina Power & Light Company d/b/a Progress Energy Carolinas,
Inc. and Florida Power Corporation d/b/a Progress Energy Florida,
Inc. and is headquartered in Raleigh, North Carolina.
The principal methodology used in rating Progress Energy Carolinas was
the Global Regulated Electric and Gas Utilities rating methodology 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
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
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
for further information.
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.
Michael G. Haggarty
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates new Progress Energy utility bank credit facilities
250 Greenwich Street
New York, NY 10007