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Rating Action:

Moody's rates new Progress Energy utility bank credit facilities

21 Oct 2010

$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.

RATINGS RATIONALE

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.

Ratings assigned:

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.

Ratings affirmed:

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 paper;

Florida Progress Funding Corporation's Baa2 junior subordinated debt;

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 website.

REGULATORY DISCLOSURES

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 Analytics' 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 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.

New York
Michael G. Haggarty
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's rates new Progress Energy utility bank credit facilities
No Related Data.
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