New York, Aug. 1, 2003 — Moody’s Investors Service downgraded the debt ratings of NorthWestern Corporation (NOR; senior secured to B3 from B2). The outlook for the ratings is negative.
The ratings downgrade reflects NOR’s high debt burden and poor coverage ratios; operating cash flow that is very weak relative to the company’s high debt level; Moody’s view that proceeds from NOR’s planned asset sales over time will not be sufficient to materially reduce its debt burden; Moody’s belief that the company might execute a distressed exchange for a portion of its debt; and concerns that challenges to NOR’s liquidity could jeopardize its ability to meet its obligations on a timely basis.
The negative rating outlook reflects Moody’s concerns about the significant execution risks that management faces as it pursues a strategy to return NOR’s focus to its core regulated electric and gas utility businesses, as well as Moody’s view that after elimination of non-core businesses the remaining debt level will continue to be a very heavy burden relative to the cash flow generating capacity of the utility operations.
Moody’s notes that NOR’s agenda for its August 26, 2003 shareholders’ meeting includes seeking approval from its shareholders to substantially increase the authorized number of shares of common stock and to reduce the par value of the common stock from $1.75 per share to $.001 per share. Given the level at which NOR’s common shares have been trading, Moody’s views this as an initial step towards creating the flexibility to initiate a possible distressed exchange offer of common equity for debt.
NOR’s new management team is making proactive efforts to improve liquidity and reduce debt. In addition to cash conservation measures already implemented and asset sale plans being pursued, NOR has put in place a two-year, $25 million secured credit facility for its Expanets subsidiary for working capital purposes. Also, NOR is advancing efforts to complete other financing to help address its tight liquidity. Despite this strategy, NOR could still face significant liquidity pressure in the event of an increase in the price of purchased power or fuel. For example, exceptionally hot summer weather could add significantly to working capital needs to fund higher than normal power purchases to meet customer demand for electricity.
NorthWestern Corporation’s ratings downgraded include: senior secured debt to B3 from B2; senior implied rating to Caa2 from B3; senior unsecured debt and Issuer Rating to Ca from Caa1; trust preferred securities to C from Caa3; shelf registration for prospective issuance of senior secured debt, senior unsecured debt, subordinated debt, preferred stock, and preference stock to (P)B3/(P)Ca/(P)C/(P)C/(P)C, respectively, from (P)B2/(P)Caa1/(P)Caa3/(P)Ca/(P)Ca, respectively; and shelf registration for prospective issuance of trust preferred securities to (P)C from (P)Caa3.
NorthWestern Corporation, headquartered in Sioux Falls, South Dakota, is a diversified service and solutions company with investments in electric and gas utility assets, energy services, and HVAC, plumbing, and telecommunications and data services.