Western Resources' credit ratings are being downgraded, partly because of concerns over the viability of a long-proposed deal with KCPL.
The nation's leading credit rating provider thinks the plug soon could be pulled on Western Resources Inc.'s proposed merger with Kansas City Power and Light.
Moody's Investors Services said it was downgrading its ratings on Western's long-term debt and reviewing the utility's short-term debt for possible downgrade.
Among the reasons: "Moody's belief a proposed merger with Kansas City Power and Light may not take place based on indications the Kansas Corporation Commission, which regulates utilities in the state, may alter the previously announced agreement," the rating service said Tuesday in a news release.
Western spokeswoman Michel' Philipp said Wednesday that it was too early to say what would happen.
"We have to wait to see what the commission's order says," she said. "We don't have that yet. We have to wait."
A commission spokeswoman said the rating change would have little effect on tentative approval the deal was given last week.
"I think the decisions have already been made," said KCC spokeswoman Kelly Mabon. "They're in the process of drafting the order right now."
Moody's attributed its merger concerns to three factors:
- Western's news releases that changes in its agreement with the corporation commission could scuttle the merger. At issue is last week's KCC approval of a deal that would not allow Western and KCPL to pass on merger costs to 770,000 Kansas customers of the merged company, to be known as Westar Energy. After the order is written, it must be signed by at least two of the three commissioners for it to take effect.
- The order being drafted by the KCC, which is due in about three weeks, "could significantly increase the company's future financial risk."
- Western's low stock price affords KCPL shareholders an opportunity to cancel the merger.
Moody's also raised concerns that Western's home security subsidiary, California-based Protection One, may default on a $500 million loan from Bank of America Corp.
Philipp said there was little concern of that happening.
"While no assurances can be given, the company believes it will be able to address this matter in a manner so that there is no default," Philipp said.
The specter of loan default was raised by Western in a recent regulatory filing with the federal Securities and Exchange Commssion. In that filing, the Topeka-based company said it was "likely" it would be unable to maintain its agreement with Bank of America after this month.
Protection One's trouble can be traced to an SEC review of its accounting practices, which this spring led it to restate financial results for the past two years. The SEC was continuing its scrutiny of the company's books.
Western has 2,400 employees in Kansas, including 175 in Lawrence. KPL's Lawrence Energy Center, north of town, provides about a fifth of KPL's power to Kansas customers.
Western stock fell 1/16 Wednesday to close at 23 13/16.
-- Richard Brack's phone message number is 832-7194. His e-mail address is rbrack@ljworld.com.
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