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Global Credit Research - 27 May 2010
New York, May 27, 2010 -- Moody's Investors Service changed the rating outlook of Integrys
Energy Group, Inc. (Integrys: Baa1 senior unsecured)
and its subsidiaries Peoples Energy Corporation (PEC: Baa1 senior
unsecured), Wisconsin Public Service Corporation (WPSC: A2
Issuer Rating), Peoples Gas Light and Coke Company (PGL: A3
Issuer Rating) and North Shore Gas Company (NSG: A3 Issuer Rating)
to stable from negative. Moody's also upgraded the following
first mortgage bond ratings: WPSC to Aa3 from A1; PGL to A1
from A2; and NSG to A1 from A2. All other ratings of Integrys,
WPSC, PEC, PGL and NSG are affirmed.
PEC is an intermediate holding company and its rating is based upon a
guarantee provided by Integrys. WPSC, PGL and NSG are wholly-owned
free-standing regulated utility subsidiaries of Integrys.
"The change in the rating outlooks reflects a reduced business risk
profile driven by the recently completed restructuring of Integrys'
non-regulated energy marketing business into a smaller segment
with significantly reduced collateral requirements" said Moody's
Vice President Scott Solomon. "The action also considered
a reduction in consolidated debt levels, the implementation of rate
increases at various utility subsidiaries and the recent renewal of $1.1
billion in credit facilities" added Solomon.
The upgrade of first mortgage bonds at WPSC, PGL and NSG follows
Moody's August 2009 upgrade of the senior secured ratings of the
majority of its investment grade regulated utilities. Issuers with
negative outlooks were excluded from the August 2009 upgrade.
Integrys has reduced the scale, scope and risk profile of its non-regulated
energy marketing business through a series of asset sales. These
transactions have allowed Integrys to recover approximately $700
million of capital invested in the business and significantly reduce collateral
support requirements going forward. In turn, Integrys has
used the returned capital to reduce debt, which currently stands
at approximately $3.1 billion on a adjusted basis compared
to $4 billion outstanding at December 31, 2008. Integrys'
remaining non-regulated business is focused on marketing electricity
and natural gas to retail customers in a select geographic region.
Integrys reported strong financial results during 2009 due to a combination
of robust returns at its non-regulated energy marketing business
and a reduced debt load. Given the company's restructuring,
Moody's expects a decline in the energy marketing segment's
contribution to earnings and cash flow generation. This business
segment, which accounted for more than 20% of Integrys'
consolidated cash flow over the past several years, is expected
to account for approximately 10% of consolidated cash flow going
A reduced consolidated debt profile combined with recently implemented
rate increases at its utility subsidiaries is expected to offset some
of the expected loss in earnings and cash flow from the energy marketing
business and allow Integrys to maintain financial metrics appropriate
for its current rating category. Integrys' key consolidated
financial metrics of cash flow from operations pre-changes in working
capital (CFO-pre WC ) to debt and cash flow coverage of interest
expense is expected to exceed 20% and 5 times, respectively,
over the near-term. Integrys achieved consolidated cash
flow from operations pre-changes in working capital (CFO-pre
WC) to debt of approximately 27% and cash flow coverage of interest
expense of 5.6 times for 2009 versus 18% and 5.0
times, respectively, in 2008.
The rating action also reflects the renewal in April of $1.1
billion in consolidated credit facilities that included $735 million
at Integrys, $250 million at PGL and $115 million
at WPSC. These new facilities replaced facilities that had been
scheduled to mature within the next few months. Integrys faces
an additional $900 million of credit facility expirations in June
2011, which it currently intends to roll into a smaller sized facility.
For further details refer to Integrys' credit opinion published
All ratings at the following listed entities are affirmed:
-Integrys Energy Group, Inc.
Baa1 Senior Unsecured Rating
Baa2 Junior Subordinated Notes
Prime-2 Commercial Paper
- Peoples Energy Corporation
Baa1 Senior Unsecured Rating
- Wisconsin Public Service Corporation
A2 Issuer Rating/Senior Unsecured Rating
Baa1 Preferred Stock
Prime-1 Commercial Paper
- Peoples Gas Light and Coke Company
A3 Issuer Rating
Prime-2 Commercial Paper
- North Shore Gas Company
A3 Issuer Rating
Moody's last rating action on Integrys and its subsidiaries occurred on
June 9, 2009 when the ratings were downgraded one notch and negative
outlooks were assigned.
The principal methodology used in rating Integrys and its regulated subsidiaries
was Rating Methodology: Regulated Electric and Gas Utilities.
It can be found at www.moodys.com in the Credit Policy &
Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors may have been considered in the process
of the rating these issuers can also be found in the Credit Policy &
Integrys Energy Group, Inc. is a diversified energy holding
company headquartered in Chicago, Illinois
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
Moody's revises outlook for Integrys Energy and its subsidiaries to stable from negative
William L. Hess
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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