CHICAGO, May 9 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
lowered the credit ratings of Ohio Power Company (Ohio Power) as follows:
first mortgage bonds to 'A-' (Single-A-Minus) from 'A' (Single-A); senior
unsecured notes to 'BBB+' (Triple-B-Plus) from 'A-' (Single-A-Minus); junior
subordinated deferred interest debentures to 'BBB' (Triple-B) from 'BBB+'
(Triple-B-Plus); and commercial paper to 'D-2' (D-Two) from 'D-1' (D-One).
Ohio Power's preferred stock rating has been reaffirmed at 'BBB' (Triple-B).
The Rating Outlook is Stable.
The rating action reflects expected weaker credit protection measures
resulting primarily from increased required environmental capital expenditures
that will pressure leverage. Ohio Power's credit quality is viewed as solid
in its new rating category reflective of its business risk profile and more-
commensurate credit protection measures.
Ohio Power's credit quality reflects significant off-balance-sheet, debt-
like obligations associated with scrubbers at its Gavin plant that create a
leveraging effect, which increases financial risk when such obligations are
reflected in an adjusted capital structure. The Gavin lease represents
approximately 14 percent of adjusted total capital and lowers interest
coverages by approximately 0.5-1.0 times.
Ohio Power continues to benefit from a competitive generation cost
structure and rate structures, strong regional economic growth and its
affiliation with the highly efficient American Electric Power (AEP) grid
system, which limits the need for additional generation capacity and allows it
to sell its excess capacity profitably to its affiliated companies and into
the wholesale marketplace. While not expected to materially impact credit
quality, Ohio Power should benefit modestly from synergistic cost savings
resulting from the pending merger of its parent company, AEP, with Central and
South West (CSW).
Ohio Power, as well as its affiliate Columbus Southern Power, reached a
Stipulation Agreement on May 8 with several outside parties concerning
implementation of its proposed transition plan that was filed in late 1999 as
required under restructuring legislation passed earlier that year. While not
binding with the Public Utilities Commission of Ohio (PUCO), it was agreed
upon by the PUCO Staff and several other intervenors. The agreement lays the
groundwork to enact a competitive retail market while importantly allowing
Ohio Power to recover essentially all of its regulated assets ($611 million as
filed) via a transition charge through 2007. Ohio Power agreed to not file to
recover stranded costs associated with its generation portfolio, but the level
of any such uneconomical costs is not expected to be material and can be
offset through expected merger savings. DCR would view the Stipulation
Agreement, if approved by the PUCO later this year, as supportive to Ohio
Power's credit quality.
Ohio Power serves approximately 679,000 customers across various portions
of Ohio, and is one of the seven operating electric utility subsidiaries of
AEP, which together serve 3 million retail customers in seven states. AEP is
expected to close by June its $6 billion stock-for-stock merger with CSW that
will add more than 1.7 million customers across four states.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Brian M. Youngberg, CFA, 312-368-3332,
youngberg@dcrco.com, or John C. Dell, 312-368-3161,
dell@dcrco.com, both of DCR
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