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Strategies & Market Trends : IPPs and Merchant Energy Co.s -- Ignore unavailable to you. Want to Upgrade?

To: Jerome who wrote (3017)	12/27/2003 12:42:04 PM
From: NDBFREE	Respond to of 3358

U.S. utilities & merchant energy companies predicted to stabilize in 2004 Fitch Ratings, Dec. 15, 2003 -- The Rating Outlook for U.S. investor-owned electric utilities and for the competitive energy sector, including generators, diversified energy merchants and energy traders, is stable, according to an outlook and review of the U.S. utility industry published by Fitch Ratings. Behind a definite and sustained stabilization of credit profiles during 2003, however, Fitch has identified volatile natural gas prices, widely varying credit quality within corporate families, event risk from acquisitions and the medium-term refinancing burden of the diversified energy sector as crucial drivers within its overall outlook for the industry over the next five years. Fitch has published several 2004 outlooks concerning the credit outlooks of various industries as well as other fixed-income sectors. Although the Outlook for the regulated and unregulated sectors is stable in both cases, this masks the divergent paths both segments have taken. While the investor-owned utilities (IOUs) either maintained creditworthiness or are well on their way to recovery, the merchant or competitive energy sector will need much more time (and consistent favorable developments) to recover. In particular, Fitch's outlook report focuses on the $43 billion of speculative-grade debt for refinancing between now and the end of 2009. Thus, while the diversified energy segment carries mostly Stable Outlooks, the median rating has fallen to the 'B-' category during 2003, implying a one-in-three likelihood of default over five years. The report published today carries a detailed quarterly refinancing schedule for the speculative grade issuers rated by Fitch in the U.S. power & gas sector, sorted by year and by rating category. The improvement in Outlooks for the regulated sector, 82% of which now carry a Stable Rating Outlook, has reflected decreasing credit contagion from unregulated businesses, stemming in large part from significantly more conservative business strategies, and the resumption of capital market access. There is evidence, however, that event risk for the sector may be rising, as merger & acquisition activity begins to pick up after the very low levels of 2003, led by both traditional utility operators and leveraged acquisition funds. Rating linkage between parents and affiliates will remain one of the single largest determinants in rating actions, with obvious implications for acquisition structures which increase leverage within the corporate group owning a utility. The report contains an analysis of the root cause behind aggregate Fitch rating actions in each of the past three years, and also highlights a list identifying 29 issuers whose ratings are currently constrained by the credit ratings of their parent company. The final issue addressed within the outlook report is the exposure of many segments within the U.S. power & gas industry to volatility in natural gas pricing. The report contains a look at Fitch's forward range of gas prices and a discussion of the impact of gas pricing on different power & gas sub-sectors covered by Fitch. The report 'Outlook 2004: U.S. Power & Gas: Utilities recover; Merchants pause for breath' can be found on Fitch's website at 'www.fitchratings.com' by linking to the 'Corporate Finance' sector, clicking on 'Global Power' and then 'Special Reports'. Fitch will be maintaining a web page with a full list of 2004 outlook pieces that will be readily available on 'www.fitchratings.com'.