Fitch: Aquila unaffected

The July 19 announcement of settlements reached by Aquila with two surety providers, Chubb and St. Paul, and the plan to terminate deliveries under four long-term natural gas contracts has no near-term affect on Aquila's existing B- senior unsecured debt rating, Fitch Ratings said Wednesday.

The termination of the gas delivery contracts is viewed as positive for Aquila's long-term prospects because it eliminates the drag on cash flow from these gas delivery contracts, reduces the uncertainty that has been plaguing the company and may help restore access to the capital markets. The cash flow improvement from the termination of the gas delivery contracts will be $115 million in 2005, $120 million in 2006 and $632 million thereafter until 2012, including the termination of APEA II, which is expected to be terminated at a later date.

However, the $575 million settlement payments and $25 million posting of collateral will constrain Aquila's liquidity and further reduce financial flexibility, absent new financing.

The outlook remains negative.

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