Aquila expects to become investment grade following Great Plains Energy merger

By Angela McDaniels

Seattle, Feb. 7 - Aquila, Inc. anticipates that its credit rating will become investment grade following its acquisition by Great Plains Energy, Inc. and the sale of its utilities outside of Missouri to Black Hills Corp., according to a company news release.

Great Plains will acquire all of Aquila's outstanding shares and its Missouri-based electric utility assets for $1.80 in cash plus 0.0856 shares of Great Plains stock for each Aquila share in a transaction valued at $1.7 billion. Black Hills will pay $940 million for the non-Missouri assets.

Following the transactions, Great Plains Energy will be the parent of Aquila, which will continue to own its Missouri-based utilities and is Merchant Services operations. The companies estimated that their combined revenues will exceed $3 billion.

"Following the combination, our utilities will have access to lower-cost capital to fund investments to meet customer growth projections, environmental upgrades and improvements to utility infrastructure," Aquila chairman, president and chief executive officer Richard C. Green said in the release.

Great Plains will assume $1 billion of Aquila's debt, and a portion of the proceeds from the Black Hills sale will be used to reduce existing Aquila debt.

The companies expect total pre-tax synergies to reach about $500 million and operational synergies to total about $310 million over a five-year period, according to the release.

Aquila is currently rated B by Standard & Poor's, B1 by Moody's Investors Service and B by Fitch Ratings. Great Plains is rated BBB by S&P and Baa2 by Moody's.

The improved credit rating is expected to lower interest costs on a substantial portion of Aquila's existing high-interest-rate debt through rate step-down provisions and to lower rates on new debt the company plans to issue to help fund ongoing capital investments, according to the release.

Aquila estimated that its interest rate savings will be about $190 million over the five years following the closing of the transactions.

Aquila is an electric utility company, and Great Plains is a public utility holding company. Both are based in Kansas City, Mo.

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