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Archive for Wednesday, November 19, 2003

S&P lowers credit rating for Westar’s Protection One

Decision could affect utility’s efforts to improve finances

November 19, 2003


— Standard and Poor's lowered its credit rating Tuesday of Protection One Inc., the security alarm company primarily owned by Westar Energy Inc.

A Westar spokeswoman said the change in Protection One's rating would not affect Westar's plans to sell its interest in the company, but an outside attorney suggested the downgrade would hurt those efforts.

Standard & Poor's dropped its rating on Protection One's corporate debt to "CCC minus," which means the rating agency considers the security company vulnerable and needing favorable business conditions to meet its commitments. The rating had been "B," which means Standard & Poor's still believes a company has the capacity to meet its obligations, though adverse conditions could hurt it.

In a statement on its action, Standard & Poor's cited Westar Energy's most recent financial report, in which Westar reported losing more than $81 million, or $1.11 a share, during the third quarter of this year. Westar attributed the loss to its decision to write down the value of Protection One by $165.6 million.

Standard & Poor's said there was "an increased potential" for a purchaser of Protection One to restructure its debts, making it possible for investors to receive less than the full dollar value.

Westar, the largest electric utility in Kansas, hopes to receive between $500 million and $650 million for Protection One, money it will use to reduce the utility's estimated $2.9 billion debt. The Protection One sale is a key part of Westar's plan for complying with an order from Kansas regulators to improve its financial condition.

"It's not going to affect our plans," Westar spokeswoman Karla Olsen said of the Standard & Poor's downgrade.

But Jim Zakoura, an Overland Park attorney representing large Westar customers, said the lower rating was a serious issue for both companies.

"It would seem to put in more jeopardy a result where Westar can reasonably sell their interest and Protection One can go on as a fine company," Zakoura said. However, he added that ratepayers would benefit if the companies were successful.

In its latest quarterly report, released Friday, Protection One said it could default on $228.4 million in credit granted to it by Westar if Westar's ownership interest drops below 50 percent.

The report said: "If Westar Energy sells its ownership interest in the company, management does not believe there will be sufficient funds from operations to continue as a going concern without a significant equity contribution or credit support from the new majority owner(s)."

Tuesday, the company did not address the Standard & Poor's downgrade directly but said, as it did Friday, "We must account for a number of different scenarios that could possibly happen, particularly any potentially negative outcomes, in order to fulfill our obligations to our stakeholders and the public markets."

In regular trading Tuesday on the New York Stock Exchange, shares of Protection One remained unchanged at 54 cents. Westar shares closed down 69 cents, at $19.32.

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