Business Wire
November 8, 2002, Friday
Fitch Ratings Places Xcel & Subsidiaries On Rating Watch Negative
NEW YORK, Nov. 8, 2002
Fitch Ratings has placed the ratings of Xcel Energy Inc. (Xcel) and its
subsidiaries Northern States Power MN (NSP-MN), Northern States Power WI (NSP-WI),
Southwestern Public Service Co (SPS) and Public Service Co. of Colorado (PSC) on
Rating Watch Negative. The Rating Outlook for Xcel had previously been Negative
as of July 30, 2002. At that time Fitch had lowered the ratings of Xcel to
reflect concerns over the impact of severe credit challenges at subsidiary NRG
Energy Inc. (not rated by Fitch) and liquidity concerns at the parent level. The
Rating Watch Negative assigned today relates to further concerns over Xcel's
short-term liquidity, following the maturity of its $400 million bank revolving
credit line due today. Fitch notes that Xcel continues to have several avenues
available to increase liquidity, and benefits from its ownership of subsidiaries
with a strong regulated utility base, but will monitor the parent's ability to
attract funding to replace the depletion of available liquidity. The $400
million committed facility at the parent level, due to expire today, was paid
down and has not been renewed. As Xcel maintained c. $340 million in cash
balances prior to the expiry of this facility, Xcel has been obliged to seek
alternative sources of funding to repay the balance beyond cash held on drawings
under the facility. The ability of Xcel to fund this portion and generate
additional liquidity at the parent level was thus dependent upon receipt of
additional funding. Xcel's ability to access additional funding has been
hampered by the need for a waiver from the Securities and Exchange Commission
(SEC) for the requirement to maintain an equity ratio of 30%. Xcel received this
waiver on Nov. 7, 2002, and, in addition, is taking steps with regard to its
interest in NRG Energy Inc. which are likely to restore Xcel's equity ratio in
the near-term. Fitch does not regard the equity ratio as a significant credit
indicator in itself, but acknowledges the significance of the waiver requirement
for Xcel's ability to raise capital.
Following receipt of this waiver, Xcel has today negotiated a financing with a
private investor group. Xcel intends to describe the financing in an 8K, which
it intends to issue on Nov. 11. The proceeds of the offering have been disbursed
this afternoon, allowing Xcel to meet the repayment of the syndicated bank
facility. Liquidity at the parent level now amounts to c. $40 million.
Alternative sources of funding for the holding company include (1) receipt of
additional funding from the facility, which is agreed but subject to
satisfaction of certain further conditions; (2) funds from a pipeline disposal,
announced today, amounting to $112 million (plus $50 million in assumed debt);
(3) a new bank facility, which in current market conditions, Fitch considers is
unlikely to have a maturity beyond one-year and/or (4) receipt of quarterly
dividends upstreamed from utility subsidiaries.
The Viking pipeline disposal has already been agreed with acquirer Northern
Border Partners, L.P. (senior unsecured debt rated 'BBB+' by Fitch), and receipt
of funds is anticipated by year-end 2002. The upstreaming of a reasonable level
of dividends from the utility subsidiaries, while facing no significant legal or
regulatory obstacles, does face practical obstacles in addressing regulatory and
investor concern over the stand-alone health of the regulated utilities. The
utility subsidiaries currently have combined cash balances of c. $1.5 billion,
and are projected to generate material free cash flow of over $400 million
during 2003, although c. $1.1 billion of committed facilities at the subsidiary
level will expire through February, June and August 2003. Extension of
additional bank facilities to the holding company, most likely shorter-term,
from the bank community may require further negotiation, during which time
Xcel's liquidity will remain under pressure.
Xcel have indicated that liquidity needs over the next month are modest,
primarily a $25 million interest payment due in early December 2002. Xcel has
stated that it does not see significant additional near-term liquidity needs in
collateral for its own trading business or as a result of the guarantee extended
to coal and gas purchase arrangements at troubled subsidiary NRG Energy. The
settlement of a restructuring of NRG Energy Inc. may, however, involve an
injection of up to $300 million by Xcel as part of the settlement with
creditors. While any such payment, were it to be made, would likely fall in
2003, the overhang of this potential obligation will continue to pressure
liquidity at the holding company, not least as Xcel seeks to access new sources
of capital.
Should Xcel successfully negotiate additional committed facilities at the parent
level or manage alternative additional liquidity, the ratings are likely to be
removed from Rating Watch and return to a Negative Outlook.
Ratings affected by the rating action are:
Xcel Energy Inc. --Senior unsecured debt 'BB+';
Northern States Power Company-MN --First mortgage bonds and secured pollution
control revenue bonds 'BBB+';
--Senior unsecured debt and unsecured pollution control revenue bonds 'BBB';
--Trust preferred stock 'BBB-'; --Commercial paper 'F2';
Northern States Power Company-WI --First mortgage bonds 'BBB+'; --Senior
unsecured debt and unsecured shelf ratings 'BBB';
Southwestern Public Service Company --First mortgage bonds 'BBB+'; --Senior
unsecured debt 'BBB'; --Commercial paper 'F2';
Southwestern Public Service Capital I --Trust preferred stock 'BBB-';
Public Service Company of Colorado --First mortgage bonds 'BBB+'; --Senior
unsecured notes 'BBB'; --Preferred stock 'BBB-'; --Commercial paper rating 'F2';
-- All entities have been placed on Rating Watch Negative.
Xcel Energy Inc. is the holding company for six electric utility companies that
serve electric and natural gas customers in 12 states, together with two
transmission companies and two natural gas pipelines. Xcel also owns a number of
non-regulated businesses, the largest of which is NRG Energy, Inc. CONTACT:
Fitch Ratings, New York
Mona Yee, CFA, 212/908-0557
Ellen Lapson, CFA, 212/908-0504
Richard Hunter, 212/908-0294
Media Relations: James Jockle, 212/908-0547 URL: http://www.businesswire.com