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Fitch Ratings Revises Rating Outlook For FE, CEI, & TED To Negative

31 Jul 2002 1:05 PM

Fitch Ratings-New York-July 31, 2002: Fitch Ratings has revised the Rating Outlook for FirstEnergy Corp (FE), Cleveland Electric & Illuminating (CEI), and Toledo Edison's (TED) outstanding securities to Negative from Stable. The Negative Outlook reflects the likelihood that debt reduction will be slower than previously anticipated due to difficulty in completing the proposed generation sale to NRG, and the adverse impact of the ongoing Davis-Besse nuclear plant outage. The plant is owned by FE subsidiaries CEI and TED. Fitch's current ratings for FE, CEI and TED's outstanding securities are listed below.

NRG's evolving financial difficulties introduce a significant measure of uncertainty regarding the close of the proposed asset sale, under the original terms and conditions. If the deal were to be renegotiated or fall through, FE's deleveraging effort would be delayed. Under the proposed transaction, FE agreed to sell 2,535 mWs to NRG for $1.355 billion in cash and $145 million in assumed debt. The cash proceeds would be used to retire relatively high cost debt and preferred securities at CEI, TED, and other FE electric utility operating subsidiaries. With regard to Davis-Besse, our projections for 2002 include incremental O&M expenditures of approximate $50-70 million and estimated capital expenditures of approximately $55-75 million. While the financial implications of the outage appear manageable, any slippage vis-a-vis the company's targeted fourth quarter 2002 restart date would be a cause for concern warranting further review, especially if the delay is combined with escalating 2003 energy prices. Management estimates that incremental purchased power costs will approximate $10-15 million during 2003 non-summer months and $20-25 million in July and August 2003, based on current energy market conditions.

The 883-mW Davis-Besse nuclear plant (which is 51%- and- 49% owned by FE subsidiaries CEI and TED, respectively) has been out-of-service since the February 2002 refueling outage began. During the outage, FirstEnergy Nuclear Operating Company (FENOC) discovered corrosion in the reactor vessel head. Management is currently undertaking efforts to replace the vessel head, with a reactor head acquired from CMS Energy, and has targeted the fourth quarter 2002 for restart. In addition to the presumed success of the reactor head replacement effort, Nuclear Regulatory Commission (NRC) approval will be required to restart the plant. FENOC will be required to demonstrate to the NRC that it has addressed management issues at the unit, including leadership and oversight issues, before the commission will allow the plant to resume commercial operation.

The outstanding ratings are as follows:

First Energy --Senior unsecured debt 'BBB'.

Cleveland Electric & Illuminating --First mortgage bonds 'BBB'; --Secured notes 'BBB'; --Preferred stock 'BB+'; --Trust preferred 'BB+'.

Toledo Edison --First mortgage bonds 'BBB-'; --Secured notes 'BBB-'; --Unsecured debt 'BB'; --Preferred stock 'BB'.

Contact: Philip Smyth 1-212-908-0531 or Robert Hornick 1-212-908-0523, New York.

Media Relations: James Jockle 1-212-908-0547, New York.

 
 

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