Oct. 3, 2002 — Allegheny Energy Inc. on Tuesday responded to a downgrade by Moody’s Investors Service with disappointment, but said the downgrade was a result of challenging times facing the energy industry.
Moody’s Investors Service downgraded the debt ratings of Allegheny Energy, Inc. (AYE), including its senior unsecured debt to Ba1 from Baa2, and its short term rating to Not Prime from Prime-2.
Moody’s also downgraded the ratings of subsidiaries Allegheny Energy Supply, Monongahela Power, Potomac Edison, West Penn Power, Allegheny Generating Company, and the rating of Allegheny Energy Supply Statutory Trust 2001. The ratings of Allegheny and its subsidiaries remain under review for possible further downgrade.
Allegheny Energy issued the following statement in response to the downgrades.
“We are disappointed with Moody’s decision. However, we understand that the credit rating agencies are dealing with unprecedented challenges facing the energy marketplace,” said Allegheny Energy Chairman, President, and Chief Executive Officer Alan J. Noia. “We intend to continue to work closely with Moody’s to address its concerns.”
Noia added, “The company has taken significant steps and continues to take actions that we believe will enable us to operate our business successfully and deliver on our commitments to shareholders and customers. We’ve refocused our strategy on managing our two asset-backed businesses in a balanced fashion; are taking a conservative approach to managing each of our businesses; have significantly reduced our energy trading activities; and will maintain our focus on aggressive cost management, creating additional operating efficiencies, and rigorously reviewing our planned expenditures.”
In light of Moody’s action, the company will be reviewing all current financing plans and options.
The company affirmed that the rating changes do not trigger any defaults or prepayment obligations under the company’s debt agreements. The company also said that it is working with its senior lenders and fully expects to be able to maintain adequate liquidity.
Allegheny Energy has taken steps to reduce its cost structure, preserve cash, and strengthen its balance sheet, including:
* Significantly reducing reliance on the wholesale energy trading business and refocusing on fundamental strengths and core assets – delivering energy to native load customers and operating the company’s low-cost fleet of legacy generation assets – while modifying its trading activities to focus on lowering risk, optimizing assets, reducing the effect and amount of mark-to-market earnings, and prudently managing and protecting the value associated with existing positions in its portfolio;
* Reducing pre-tax operating expenses by $45 million in 2002;
* Cancelling a number of generation projects, thereby reducing capital expenditures by approximately $700 million over the next several years; and
* Reducing the Allegheny Energy workforce by approximately 10 percent as a result of an early retirement option offered earlier this year, resulting in an estimated additional $5 million of expense reductions this year and ongoing annualized savings of $40 million to $50 million. The company will determine if any selected staff reductions will be needed after it completes staffing for its newly redesigned organization during the first quarter of 2003.
With headquarters in Hagerstown, Md., Allegheny Energy is an integrated Fortune 500 energy company with a balanced portfolio of businesses, including Allegheny Energy Supply, which owns and operates electric generating facilities and supplies energy and energy-related commodities in selected domestic retail and wholesale markets; Allegheny Power, which delivers low-cost, reliable electric and natural gas service to about three million people in Maryland, Ohio, Pennsylvania, Virginia, and West Virginia; and a business segment offering fiber-optic and data services, energy procurement and management, and energy services. More information about the company is available at www.alleghenyenergy.com.
Source: Allegheny Energy, Inc.