Moody’s downgrades Aquila Inc. to B3

New York, April 2, 2003 — Moody’s Investor Service downgraded the Senior Implied rating of Aquila, Inc. to B3.

The downgrade reflects (1) weak cash flow generation relative to total debt despite recent asset divestitures; (2) asset sales proceeds which do not reduce debt commensurate with the amount of debt that was incurred to purchase the same assets; (3) liquidity concerns related to unwinding its trading business; and (4) substantial near term liquidity pressures.

This concludes the review for downgrade. The rating outlook is negative.

Ratings are downgraded as follows:

“- Senior Implied to B3 from B1
“- Senior Unsecured to Caa1 from B1
“- Subordinate Debt to Caa3 from B2
“- Preferred Stock to Ca from B3
“- Subordinate Shelf to (P)Caa3 from (P)B2
“- Junior Sub. Shelf to (P)Caa3 from (P)B2

The Issuer Rating of Aquila Merchant Services was withdrawn.

The ratings downgrade reflects Moody’s concern that asset sales do not allow sufficient cash flow to repay parent debt to a level consistent with the expected cash generation of the remaining businesses. While cash flow from the remaining regulated utilities are expected to be less volatile, Aquila’s efforts to unwind its trading business continues to be a substantial drag on its operating performance, and asset sales have not resulted in debt reduction to a level that is consistent with its ratings.

The negative outlook reflects the strain on the company’s liquidity in the near term, with a need to refinance its syndicated bank credit facilities this month, and a reliance upon asset sales to meet its obligations over the next year.

The company is expecting to close a secured loan refinancing, proceeds of which will be used to refinance the existing bank credit facilities and ease the company’s immediate liquidity pressure. The new secured loans will be rated separately, considering the structure of the new loan package and underlying collateral.

Going forward, given the weak level of operating cash flow, Aquila will continue to carry a substantial debt burden even if its efforts to streamline to a more stable base of assets are successful.

Aquila, Inc. headquartered in Kansas City, MO., operates a regulated electric and gas networks business in the US, Canada, Australia and the UK, and owns other energy assets.

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