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Rating Action:

Moody's reviews Avista's rtgs. for possible upgrade

22 Jun 2007
Moody's reviews Avista's rtgs. for possible upgrade

Approximately $1.1 billion of securities affected

New York, June 22, 2007 -- Moody's Investors Service placed all of the ratings of Avista Corp. (Ba1 senior unsecured) under review for possible upgrade. The rating action reflects the faster than anticipated progress toward the sale of its unregulated Avista Energy, Inc. subsidiary and our expectation that the sale proceeds will initially be used to reduce debt.

In April, Avista Energy signed a definitive agreement to sell, subject to requisite regulatory approvals and other pre-closing conditions, substantially all of its contracts and ongoing operations to Coral Energy Holding, L.P. and certain of its subsidiaries (collectively Coral Energy), a subsidiary of Shell. With virtually all required regulatory approvals in hand and substantially all closing conditions met, we expect that Avista can close the sale of Avista Energy by June 30, 2007.

As structured, the transaction calls for the sale of Avista Energy's trading portfolio at net book value, subject to various adjustments at closing. At the same time, Avista Corp. is expected to liquidate assets not subject to the sale or transfer to Coral Energy. These assets, which are largely comprised of receivables and restricted cash and deposits with counterparties, could generate proceeds near $175 million.

If successful, the sale of Avista Energy contracts and operations would reduce the earnings volatility associated with the energy resource management and trading operations, lower Avista Corp.'s overall business risk profile, and leave it largely focused on the regulated electric and natural gas utility business operated through the Avista Utilities division. The lone remaining non-regulated business activity of any significance would then be the facility and information and cost management services business conducted by Advantage IQ (formerly known as Avista Advantage).

In addition to taking into account the likely significant improvement in Avista's overall business risk profile, the review will also consider our view of Avista's ability to cope with the challenges of a somewhat higher capital spending program over the next couple of years. The capital program, which primarily relates to the Avista Utilities division, could constrain Avista's ability to further strengthen its financial metrics if the Washington and Idaho state regulators do not provide timely and adequate recovery of the capital investments. This is especially so when considering the lost cash flow contributions formerly derived from Avista Energy. Against this backdrop, the review will also entail increased weighting to our assessment of likely future outcomes in regulatory proceedings, especially those in Washington, which is Avista's largest jurisdiction by far.

Avista ratings under review for possible upgrade include:

senior secured debt, Baa3

senior unsecured debt and Issuer Rating, Ba1

preferred stock, Ba3

senior secured shelf, (P)Baa3

senior unsecured shelf, (P)Ba1

preferred stock shelf, (P)Ba3

AVA Trust III, trust preferred securities, Ba2

Avista Corp Capital II, trust preferred securities, Ba2

Avista Corp. is an energy company involved in the production, transmission and distribution of energy as well as other energy-related businesses. It is headquartered in Spokane, Washington.

New York
William L. Hess
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Kevin G. Rose
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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