8-KOther Events

AMEREN CORP 8-K Report, Corporate Update (Apr 25, 2007)

Filed April 25, 2007For Securities:AEE

Summary

This 8-K filing from Ameren Corporation, dated April 25, 2007, reports significant negative credit rating actions by Standard & Poor's (S&P) on April 23, 2007. S&P downgraded the corporate credit ratings and senior unsecured debt ratings for Ameren and several of its subsidiaries, including AmerenUE, AmerenCIPS, Ameren Energy Generating, CILCORP, AmerenCILCO, and AmerenIP. These downgrades were primarily driven by the passage of legislation in the Illinois Senate that proposes to roll back electric rates to pre-January 2007 levels, freeze them for at least a year, and require refunds of recent rate increases. S&P indicated that these ratings remain under review for further possible downgrade, citing potential significant revenue shortfalls and liquidity impacts on the Ameren Illinois utilities if the legislation becomes law. Moody's Investors Service also commented on the situation, viewing the Illinois Senate's action as a negative development that could lead to multi-notch downgrades for the Ameren Illinois utilities if the legislation is enacted. The company anticipates that these rating downgrades may lead to reduced access to capital, increased borrowing costs, higher costs for fuel and power, and the potential need to post collateral for trade obligations. Investors should be aware of the heightened regulatory and financial risk facing Ameren, particularly its Illinois-based operations, as a result of these legislative actions and rating agency responses.

Key Highlights

  • 1Standard & Poor's (S&P) downgraded credit ratings for Ameren Corporation and several of its subsidiaries on April 23, 2007.
  • 2The downgrades were primarily triggered by Illinois Senate legislation proposing to roll back and freeze electric rates.
  • 3The legislation would mandate refunds of revenues collected since January 1, 2007, due to rate increases.
  • 4S&P placed the downgraded ratings under review for possible further downgrade.
  • 5Moody's also commented, stating the legislation is a negative development and could lead to significant downgrades for the Illinois utilities.
  • 6Ameren expects reduced access to capital, increased borrowing costs, and higher operational costs as a result of the rating downgrades.
  • 7Potential need to post collateral or provide other assurances for trade obligations is also anticipated.

Frequently Asked Questions

The primary reason for the credit rating downgrades by Standard & Poor's was the passage of legislation in the Illinois Senate that aims to roll back electric rates to pre-January 2, 2007 levels, freeze them for at least one year, and require refunds of revenues collected since January 1, 2007, due to prior rate increases. This legislation poses a significant risk to the financial performance and liquidity of Ameren's Illinois-based utilities.

Ameren anticipates several negative impacts from these credit rating downgrades. These include potentially reduced access to capital markets, increased costs for borrowing, higher expenses for fuel, power, and gas supply, and the possibility of needing to provide collateral or other assurances for certain trade obligations, which could negatively affect earnings.

Moody's Investors Service views the Illinois Senate's passage of the rate freeze legislation as a negative development. While it doesn't expect an immediate impact on current credit ratings, Moody's indicated that any progress towards enacting this legislation into law could result in significant, multi-notch downgrades for the Ameren Illinois utilities, pushing them well into speculative grade.

S&P indicated that while a complete rate rollback and freeze would harm Ameren's consolidated financial profile, the damage to Ameren's, AmerenUE's, and Ameren Energy Generating Company's corporate credit ratings would likely be contained, and these ratings would probably remain investment grade. However, the Illinois utilities (AmerenCIPS, AmerenCILCO, AmerenIP) faced more severe downgrades and are more directly exposed to the legislative impacts.