Moody's lowers Citizens' credit ratings on $2.6B in bonds

Back to TopCommentsE-mailPrintBookmark and Share

Moody’s Investor Services has lowered Citizens Energy Group’s ratings on more than $2.6 billion in bonds.

The credit rating service has stuck with a “stable” outlook for Citizens’ ability to repay its debts. But an Oct. 3 report cites concerns across all the operations at the Indianapolis-based utility, which is a public trust that operates the city’s gas, steam, water and sewage services.

Among the troublesome issues cited by Moody's: Citizens can’t move cash across its divisions, the utility needs approval from state regulators before changing its rates, and there is “potential exposure to non-traditional municipal finance risks.”

The downgrades to Citizens’ bonds were:

— A1 to A2 on $927.1 million in first-lien revenue bonds for Citizens Water System.
— A2 to A3 on a $42.9 million in second-lien revenue bonds for Citizens Water.
— A1 to A2 on $884.7 million in first-lien revenue bonds for Citizens Wastewater Authority.
— A2 to A3 on $314 million in second-lien revenue bonds for Wastewater Authority.
— A2 to A3 on $125.4 million in bonds for Citizens Thermal Energy Systems.
— Aa3 to A2 on a $51.4 million in bonds for Citizens Gas Utility System.
— A2 to A3 on $291.3 million in bonds for Citizens Gas Distribution Utility System.

Despite the downgrades, Citizens' bond ratings remain in the “upper-medium grade” and “low credit risk” territory, by Moody’s standards. The highest-quality rating for corporate bonds is triple-A The rating levels descend to triple-C as the possibility of default increases, and finally to D, or default.

“We’re certainly disappointed in Moody’s decision to downgrade the company,” said Citizens spokesman Dan Considine, noting that the company maintained A-grades.

A review began in June after Citizens and Evansville-based Vectren Corp. unloaded ProLiance Energy, a financially troubled natural gas marketer they jointly owned, to Dallas-based Energy Transfer Partners.

Moody’s began the review to determine if ProLiance, which lost $51 million in 2012, had an effect on Citizens, which held a 39-percent stake.

Exiting the investment was a good thing, said Dan Aschenbach, a senior vice president at Moody’s. But Citizens' “corporate-like” mindset—compared to more conservative strategies used at municipal utilities—carries more risk, he said.

A second review of bonds tied to Citizens Water and Citizens Wastewater bonds also questioned ProLiance’s effects on those divisions. The review determined that there wasn’t a direct effect.

However, Moody's decided that the water and sewage divisions faced other hindrances—enough to lower ratings on their bonds.

The regulated process for changing water rates was a key concern, especially after Citizens in February filed with the Indiana Utility Regulatory Commission to increase water rates 14.7 percent and sewage rates 31.7 percent. The steeper charges were intended to cover infrastructure upgrades.

Most municipal utilities can change rates without state approval. But because Citizens is not owned by the city, it needs to go through the IURC. The process takes longer and could result in rejection. Indiana’s utility consumer office has already suggested slimmer rate increases of 3 percent for water and 25 percent for sewer.

Moody’s held onto a “stable” rating for the wastewater bonds, which will be affected by customers’ abilities to pay the steeper bills, Aschenbach said.

The thermal division, which provides steam heating to customers downtown, has too few customers, Moody's said. Although Citizens has “a strong market position,” the loss of a significant customer could seriously hinder revenue.

A spokeswoman for Citizens did not immediately respond to a request for comment.

Moody’s is one of three major credit rating services, the others being Fitch Ratings and Standard & Poor's. The latter two have not publicly indicated recently that they would review Citizens.


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. Aaron is my fav!

  2. Let's see... $25M construction cost, they get $7.5M back from federal taxpayers, they're exempt from business property tax and use tax so that's about $2.5M PER YEAR they don't have to pay, permitting fees are cut in half for such projects, IPL will give them $4K under an incentive program, and under IPL's VFIT they'll be selling the power to IPL at 20 cents / kwh, nearly triple what a gas plant gets, about $6M / year for the 150-acre combined farms, and all of which is passed on to IPL customers. No jobs will be created either other than an handful of installers for a few weeks. Now here's the fun part...the panels (from CHINA) only cost about $5M on Alibaba, so where's the rest of the $25M going? Are they marking up the price to drive up the federal rebate? Indy Airport Solar Partners II LLC is owned by local firms Johnson-Melloh Solutions and Telemon Corp. They'll gross $6M / year in triple-rate power revenue, get another $12M next year from taxpayers for this new farm, on top of the $12M they got from taxpayers this year for the first farm, and have only laid out about $10-12M in materials plus installation labor for both farms combined, and $500K / year in annual land lease for both farms (est.). Over 15 years, that's over $70M net profit on a $12M investment, all from our wallets. What a boondoggle. It's time to wise up and give Thorium Energy your serious consideration. See http://energyfromthorium.com to learn more.

  3. Markus, I don't think a $2 Billion dollar surplus qualifies as saying we are out of money. Privatization does work. The government should only do what private industry can't or won't. What is proven is that any time the government tries to do something it costs more, comes in late and usually is lower quality.

  4. Some of the licenses that were added during Daniels' administration, such as requiring waiter/waitresses to be licensed to serve alcohol, are simply a way to generate revenue. At $35/server every 3 years, the state is generating millions of dollars on the backs of people who really need/want to work.

  5. I always giggle when I read comments from people complaining that a market is "too saturated" with one thing or another. What does that even mean? If someone is able to open and sustain a new business, whether you think there is room enough for them or not, more power to them. Personally, I love visiting as many of the new local breweries as possible. You do realize that most of these establishments include a dining component and therefore are pretty similar to restaurants, right? When was the last time I heard someone say "You know, I think we have too many locally owned restaurants"? Um, never...