New York, May 20, 2002 — Moody’s Investors Service downgraded the credit ratings of Portland General Electric Company in response to the announcement that Enron Corp. and Northwest Natural Gas Co. agreed to release each other from the stock purchase agreement from Oct. 5, 2001.
The company’s senior secured debt rating is downgraded to Baa2 from A3 and its short-term rating for commercial paper is downgraded to Prime-3 from Prime-2. Moody’s is also continuing to review all of the company’s ratings for possible further downgrade.
The rating downgrades are in response to the announcement that Enron Corp. and Northwest Natural Gas Company (NWN) mutually agreed to release each other from the stock purchase agreement entered into October 5, 2001.
Under the stock purchase agreement, NWN previously planned to acquire Portland General Electric Company (PGE) from Enron for $1.8 billion plus $1.1 billion of assumed debt. The previous rating levels for PGE, which were in effect since November 28, 2001, reflected Moody’s opinion of the credit risk profile that PGE would likely possess as a wholly-owned subsidiary of a holding company that NWN was planning to create as part of the purchase of PGE.
Moody’s decision to downgrade PGE’s ratings takes into account the critical fact that the new senior management of Enron, as well as PGE’s management, have made firm representations that future plans involving PGE in no way involve the company becoming part of Enron’s ongoing bankruptcy proceedings. Moody’s also views the current regulatory and contractual protections that restrict Enron’s access to PGE’s assets as valid insulation for PGE’s creditors.
Nevertheless, the uncertainty surrounding the eventual ownership structure for PGE in light of the decision to cancel the stock purchase agreement warrants the downward adjustment in PGE’s ratings and continuation of a review for possible further downgrade.
In continuing to review PGE’s ratings for possible further downgrade, Moody’s will conduct a thorough assessment of the recent proposal by Enron to its creditors committee which, under section 363 of the Federal Bankruptcy Code, would enable Enron to separate core viable energy assets, including PGE, from Enron’s bankruptcy estate.
This proposal is subject to the endorsement of the creditors committee and the ultimate approval of the Bankruptcy Court. Until such time, it is uncertain precisely what role PGE will play in the proposed structure and it is uncertain what the financial profile of the structure will look like.
Moody’s ongoing review of PGE’s ratings will also seek specific answers to questions surrounding potential contingent obligations that PGE may be subject to, which relate to certain Enron employee benefit plans and tax obligations.
Despite the current uncertainty, Moody’s notes that PGE remains a fundamentally sound utility. On the basis of those sound fundamentals, Moody’s said it expects that PGE can sustain the current comfortable common equity cushion and maintain solid coverage of fixed obligations.
The ratings service also noted that the Oregon Public Utility Commission regulatory requirement that PGE maintain a minimum 48% common equity ratio remains in place, as does the required 30-day advance notice to state regulators of any special dividends that PGE might make to the parent company.
Meanwhile, deregulation of the electric utility industry in Oregon is progressing slowly under Senate Bill 1149 and regulatory support for a 35% rate increase and a stipulated power cost adjustment mechanism covering October 1, 2001 through December 31, 2002 helped resolve uncertainties about recovery of volatile power supply costs.
PGE is currently pursuing alternatives to address the pending expiry of a bank credit facility and strengthen its liquidity position. Included among the alternatives is the issuance of first mortgage bonds, which would reduce dependence on short-term debt, as well as new revolving credit facilities.
Ratings downgraded and continuing under review for possible further downgrade include PGE’s senior secured debt to Baa2 from A3; its issuer rating and unsecured debt to Baa3 from Baa1; its junior subordinated debt to Ba1 from Baa2; its preferred stock to Ba2 from Baa3; its shelf registration for senior secured debt/ senior unsecured debt/ junior subordinated debt to (P)Baa2/(P)Baa3/(P)Ba1 from (P)A3/(P)Baa1/(P)Baa2; and its short-term debt ratings to Prime-3 from Prime-2 and VMIG-3 from VMIG-2.
Portland General Electric Company, a wholly-owned subsidiary of Enron Corp., is an electric utility company with headquarters in Portland, Oregon.