Moody's confirms Avon Energy, outlook negative

Moody's Investors Service confirmed Avon Energy Partners Holdings' senior unsecured debt at Caa1 with a negative outlook and changed the outlook to positive from developing on the Baa3 issuer rating of Aquila Networks and the Baa3 guaranteed debt rating of Midlands Electricity plc and confirmed those ratings.

Moody's actions are in response to the conditional agreement announced today by these companies' ultimate owners Aquila, Inc. and FirstEnergy Corp. to sell Avon Energy Partners to Powergen UK plc.

The proposed transaction has an enterprise value of £1.146 billion comprising £36 million cash consideration for the equity holders Aquila, Inc. and FirstEnergy Corp.; £484 million in assumed debt either at or guaranteed by the regulated electricity distribution network Aquila Networks plc.; and £626 million in cash payments to existing Avon Energy Partners bondholders.

The decision to change the outlook to positive on the ratings of Aquila Networks and the guaranteed debt of Midlands Electricity and confirm these ratings reflects Moody's expectation that the credit risk profiles of the two entities will be positively impacted by their integration into the Powergen and therefore parent E.ON families.

Moody's confirmation of Avon Energy Partners' Caa1 rating with a negative outlook reflects the fact that the transaction is conditional upon Avon Energy Partners bondholders agreeing to tender their bonds for 96.6% of their nominal value, which the rating agency regards as a distressed debt exchange with some impairment.

Fitch cuts Avon Energy

Fitch Ratings downgraded Avon Energy Holding Partners' ratings downgraded to DDD from CC and put Midlands Electricity plc's senior unsecured debt at BBB- on Rating Watch Positive. Fitch confirmed Aquila Power Networks plc at BBB+ with a stable outlook.

Fitch's action follows E.ON's purchase agreement has been reached with Aquila Inc., FirstEnergy Corp. and Avon Energy Holding bondholders.

Fitch said it lowered Avon Energy Holding because of the acceptance from bondholders of a 4.2% discount on the nominal value, the explicit recovery rate being within 90% and 100%.

The Rating Watch Positive for Midlands Electricity reflects the prospect of a change in ownership to a higher rated entity.

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