Fitch Upgrades Aquila, Inc's Ratings
October 2, 2006
Fitch Upgrades Aquila, Inc's Ratings. Check it out:CHICAGO --(Business Wire)-- Fitch has upgraded Aquila, Inc.'s (ILA) ratings as follows:
--Issuer Default Rating (IDR) to 'B' from 'B-';
--Senior Secured to 'BB/RR1' from 'BB-/RR1';
--Senior Unsecured to 'B+/RR3' from 'B-/RR4'.
Approximately $1.1 billion of debt is affected. The Outlook is Stable.
The upgrade reflects the utility's improved credit profile and improved recovery prospects as a result of ILA's debt reduction and restructuring efforts during the past year. Using proceeds from utility and non-utility asset sales, ILA has reduced debt and debt equivalents by approximately $720 million. Fitch's recovery methodology uses a distressed multiple to determine enterprise valuation. This methodology also considers debt equivalents, like tolling agreements, on a net present value basis.
The Stable Rating Outlook reflects Fitch's expectation that ILA's credit metrics will remain within parameters for the 'B' rating category over the next year. Cash flow from operations should benefit from lower working capital needs due to lower commodity prices, lower interest expense due to the retired debt, and lower extraordinary tax payments from the gain on sale of assets.
Further debt reductions are possible using proceeds from the sale of ILA's Kansas electric utility, offset by higher capital spending for the Iatan facility funded by a secured bank line. The Kansas utility sale is expected to close for approximately $255 million, exclusive of any working capital adjustments. ILA recently filed in Missouri for an increase in base rates and the implementation of a fuel cost recovery mechanism. The filing also includes a request for recovery of a generation facility like the Aries power project that ILA recently announced it would purchase from Calpine for $158.5 million. Further debt reductions or a favorable outcome in the rate case would improve credit metrics and could result in a ratings upgrade.
ILA is a regulated electric and gas utility serving more than 460,000 electric and 900,000 natural gas customers in five Midwestern states.
Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.
Fitch's rating definitions and the terms of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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