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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
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.
William L. Hess
Corporate Finance Group
Moody's Investors Service
Kevin G. Rose
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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