Moody's considers downgrade of some Duke ratings

New York, September 20, 2002 -- Moody's Investors Service placed the securities ratings of Duke Energy and Duke Capital Corporation on review for potential downgrade.

Ratings under review are Duke Energy's Aa3 first mortgage bond rating, A1 senior unsecured and issuer ratings, and its P-1 short-term commercial paper rating. Also under review are Duke Capital's A3 senior unsecured and issuer ratings, Pan Energy's A3 senior unsecured rating and Texas Eastern's A2 senior unsecured ratings.

Duke Capital's P-2 commercial paper rating is not under review, nor are the long term Baa2 and short term P-2 ratings assigned to Duke Energy Field Services or the A1 secured rating assigned to Maritimes and Northeast.

The review is prompted by Duke's announcement that its earnings expectations will be materially lower in 2002 and 2003 based on continued weakness in Duke Capital's merchant energy subsidiary, Duke Energy North America (DENA).

Since Duke Capital's credit profile drives business and financial risks at Duke Energy, Moody's has placed the parent's ratings on review as well. DENA contributed 13% of consolidated EBIT during the first six months of 2002.

The company's revised forecast incorporates the current depressed environment for power prices and dim prospects for recovery in the intermediate term. This will impact operating cash flow relative to debt and other key measures of credit quality. With the outlook for 2003 earnings and cash flow flat at best, Duke's ability to improve credit measures will be limited. The company further announced the deferral of three merchant plants contributing to a pre-tax charge of $250-$300 million in the third quarter.

Steps to mitigate the impact of poor performance at DENA include further capital expenditure reductions and asset sales to bolster the company's overall liquidity position. Along with realized or announced asset sales proceeds of $500 million, the company expects that capex reductions of $800 million for the remainder of this year will enable cash from operations largely to cover capex with some external financing requirements.

Along with asset sales proceeds, management expects cash from operations to cover reduced 2003 capital expenditures of $3.5 billion. Duke estimates that non-core assets available for sale could realize proceeds in the $1 - $3 billion range.

The company's core regulated businesses buffer cyclicality exhibited in the merchant energy sector. Core businesses include franchised electric (Duke Power Company) a 43% EBIT contributor for the first six months of the year; and gas transmission (the Texas Eastern, Algonquin, East Tennessee Natural Gas, Market Hub Partners and WestCoast Energy assets) a 32% EBIT contributor.

Moody's review will focus on the following issues: the implementation and impact of capital expenditure reductions on the company's cash generating capabilities; the company's financial flexibility and liquidity position; longer term prospects for merchant energy and its ongoing impact on the risk profile of the company; the financial health and credit profiles of the regulated businesses; the timing and use of asset sale proceeds; and the likely outcome of various governmental investigations into the company's trading operations. In addition, we will review the appropriate relationship between the long and short-term ratings assigned to Duke Energy and to Duke Capital. Duke Energy is headquartered in Charlotte, North Carolina.

Source: Moody's

Sponsored by FLSmidth

Related Articles

Dynegy delays power plant acquisition to submit additional info to FERC

Dynegy Inc. (NYSE:DYN) announced that the Federal Energy Regulatory Commission (FERC) has requested additional information to process and approve the company’s acquisition of Duke Energy’s (NYSE: DUK) Midwest Generation assets and retail business, and EquiPower Resources and Brayton Point Holdings assets.

Unusual coalition seeks ballot measure to expand solar power

Tea partiers, Libertarians, conservative Christians, Florida's largest retail association, and clean energy advocates announced Wednesday that they are joining a petition drive aimed at expanding the use of solar energy in Florida.

Follow Power Engineering on Twitter
Latest News

Chinese investors possibly interested in Areva’s business

Three Chinese organizations have expressed interest in different parts of Areva’s business as...

Areva to supply nuclear spent fuel storage units to power plant

Areva TN was awarded a contract by Exelon Nuclear (NYSE: EXC) to supply used fuel storage mod...

EIA: Natural gas, renewables to meet increased electricity demand

Natural gas and renewable energy generating sources are expected to meet all of the increase ...

Edison International to offer, demonstrate Tesla energy storage battery

Hours after Tesla Energy released its home energy storage battery solution, Edison Internatio...

Entergy Arkansas sees too many known unknowns to file a resource plan this year

Citing uncertainties in areas ranging from clean-air compliance for coal-fired capacity and a...

Dominion reports that Brunswick County combined-cycle plant is 60% complete

Dominion (NYSE:D) has recently been developing a lot of new generating capacity, especially n...

Wolf Creek reactor trips following refueling outage

The Wolf Creek nuclear power plant in Kansas shut down as workers were ramping up the reactor.

Bruce Power picks consulting firm for nuclear project management

VA Business Solutions, an independent consulting group, was picked to provide improvement in ...

Power Engineering Current Issue

Volume 119, Issue 1
Products Showcase
Dynamic Fluoride Ion cleaning DFIC of industrial natural gas turbines Hi-Tech Furnace Systems

Dynamic Fluoride Ion Cleaning of IGT Parts

The Dynamic Fluoride Ion Cleaning (DFIC) Process from Hi-Tech Furnace Systems is able to clean deep, narrow cracks of oxides by cycling between negative, atmospheric, and positive pressure.

Archived Articles

2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015

Power Industry Wire News

Magnum Hunter Resources Schedules First Quarter 2015 Financial and Operating Results Conference Call

Magnum Hunter Resources Schedules First Quarter 2015 Financial and Operating Results Co...

Emerald Oil Reports First Quarter 2015 Financial and Operational Results; Re-Determined Borrowing Base and Amendment to Credit Facility

Emerald Oil Reports First Quarter 2015 Financial and Operational Results; Re-Determined...

Audubon Engineering Solutions to Present at the 2015 Offshore Technology Conference

Audubon Engineering Solutions to Present at the 2015 Offshore Technology Conference

Ideal Power Inc. Announces First Quarter 2015 Results

Ideal Power Inc. Announces First Quarter 2015 Results

Worthington Introduces Large Diameter CNG Cylinder

Worthington Introduces Large Diameter CNG Cylinder

Power Engineering

Article Archives for Power Engineering Magazine

Continuing Education

Professional Development Hours

To access a course listing associated to a specific topic listed below, click on the topic of choice from the list below.

Latest Energy Jobs

View more Job Listings >>