Duff & Phelps Upgrades Public Service Co. of New Mexico's Credit Rating

Strategic Insights -

Public Service Co. of New Mexico's (PNM) EIP Funding Corp. secured lease obligation bonds have been upgraded by Duff & Phelps Credit Rating Co. from "BB-" to "BB". The preferred stock has also been upgraded from "CCC" to "B". Approximately $129 million of fixed obligation and preferred stock securities are affected by the upgrade. The upgrade reflects PNM's progress toward restructuring its rates and operations. The company plans to use proceeds from its pending asset sales to retire short-term borrowings and redeem $130 million of high-cost Palo Verde Funding Corp. lease obligation bonds.

Key Takeaways:

  • PNM's EIP Funding Corp. secured lease obligation bonds have been upgraded to "BB" from "BB-" by Duff & Phelps Credit Rating Co.
  • The preferred stock has been upgraded to "B" from "CCC" by Duff & Phelps Credit Rating Co.
  • Approximately $129 million of fixed obligation and preferred stock securities are affected by the upgrade.
  • PNM's first mortgage bonds and Palo Verde Funding Corp. lease obligation bonds have been reaffirmed at "BBB-" and "B+" respectively.
  • The upgrade reflects PNM's progress toward restructuring its rates and operations.
  • The company plans to use proceeds from its pending asset sales to retire short-term borrowings and redeem $130 million of high-cost Palo Verde Funding Corp. lease obligation bonds.
  • The retirement of these bonds will result in interest expense savings and reduce high-cost debt.
  • Despite asset sales and debt retirement, PNM's excess capacity and leverage will remain high.
  • The New Mexico Public Utility Commission issued its final order in November 1994, improving PNM's competitive position by lowering rates and providing a framework for improving its financial position.
  • The agreement allows PNM to retain a portion of the benefits from possible future generating asset sales and provides rate stability until 1997.
  • Base rate reductions should be offset by ongoing cost containment, expiration of a high-cost purchased power contract, and strong service territory growth.
  • With reduced regulatory uncertainty and business risk, credit protection measures are expected to gradually improve.

Statistics:

  • $129 million: Approximate amount of fixed obligation and preferred stock securities affected by the upgrade.
  • 1.1 million: Number of people served by Public Service of New Mexico in the state of New Mexico.

Sources:

  • Duff & Phelps Credit Rating Co.
  • Public Service Co. of New Mexico
  • New Mexico Public Utility Commission
  • PR Newswire