20180126Avista to Staff_DR_017Attachment A.pdf

Rating Action: Moody's Affirms Avista Corp. at Baa1; Outlook Stable
Global Credit Research - 19 Jul 2017
Approximately $1.5 Billion of Debt Securities Affected
New York, July 19, 2017 -- Moody's Investors Service, ("Moody's") affirmed the ratings of Avista Corp.,
including its Baa1 long-term issuer rating (see debt list below), following its announced agreement to be
acquired by the Canadian electric utility Hydro One, Ltd. (HOL unrated). The outlook is stable.
Outlook Actions:
..Issuer: Avista Corp.
....Outlook, Remains Stable
Affirmations:
..Issuer: Avista Corp.
.... Issuer Rating, Affirmed Baa1
....Multiple Seniority Medium-Term Note Program, Affirmed (P)A2
....Senior Secured Medium-Term Notes, Affirmed A2
....Senior Secured First Mortgage Bonds, Affirmed A2
....Senior Secured Medium-Term Note Program, Affirmed (P)A2
....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1
RATINGS RATIONALE
"The affirmation of Avista's ratings reflects our understanding that the acquisition debt, to be issued by Hydro
One, Ltd., will be a direct obligation of the larger, more diverse Canadian holding company and should not
affect Avista's standalone financial profile" said Vice President Ryan Wobbrock.
On 19 July, HOL announced it had reached an agreement to acquire Avista Corp. for $53 per share in a $5.3
billion all-cash transaction, including the assumption of roughly $1.9 billion of Avista reported debt. The $53 per
share purchase price represents a premium of around 24% to Avista's 18 July closing price. HOL has
indicated that part of the transaction financing will include the issuance of nearly $2.6 billion of HOL debt and
about CAD1.4 billion of contingent convertible debentures.
Moody's expects that the transaction debt will be issued directly by HOL, a much larger holding company, and
that it will not materially change Avista's financial or leverage metrics. Moody's also assumes that there will be
no significant change to Avista's regulated capital structure and dividend policy. As such, we believe that
HOL's ownership will be credit neutral, based on current assumptions.
The acquisition is subject to the approval of Avista shareholders, various US state utility regulatory
commissions (i.e., the Washington Utilities and Transportation Commission, the Oregon Public Utilities
Commission, the Idaho Public Utilities Commission, the Regulatory Commission of Alaska, and the Montana
Public Service Commission), the Federal Energy Regulatory Commission, among others, and in compliance
with the Hart-Scott-Rodino Act.
Avista's Baa1 senior unsecured rating and stable outlook reflects its primary business as a low-risk vertically
integrated electric and gas utility with supportive cost recovery mechanisms, such as electric and gas revenue
decoupling. Recent adverse regulatory events in Washington, Avista's primary jurisdiction, create some
uncertainty for the company going forward, but Avista's financial profile can provide cushion to offset any
negative effects over the next 12-18 months.
Staff_DR_017(AVA) Attachment A Page 1 of 5
negative effects over the next 12-18 months.
Rating Outlook
The stable rating outlook reflects our view that the pending acquisition by HOL will not materially affect the
credit quality of Avista. The outlook also incorporates a view that Avista will continue to benefit from
reasonably credit supportive regulation in its jurisdictions, especially its primary jurisdiction of Washington.
Factors that Could Lead to an Upgrade
The ratings for Avista could be upgraded if regulatory relationships in Washington improve and the company is
able to produce cash flow to debt metrics above 21% on a sustained basis, without the benefits from one-time
adjustments or temporary tax benefits.
Factors that Could Lead to a Downgrade
Avista's ratings could considered for downgrade if less credit supportive regulatory relationships materialize
over a sustained period of time or if cash flow to debt metrics were to fall to 17% on a consistent basis. Also, if
the contribution of Avista's unregulated business were to increase significantly or its dividend payout increased
meaningfully to support the new parent company's acquisition debt.
The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June
2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain
regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or
category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this
announcement provides certain regulatory disclosures in relation to the credit rating action on the support
provider and in relation to each particular credit rating action for securities that derive their credit ratings from
the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be
assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms
have not changed prior to the assignment of the definitive rating in a manner that would have affected the
rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on
www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this
credit rating action, and whose ratings may change as a result of this credit rating action, the associated
regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following
disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated
entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related
rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures
for each credit rating.
Ryan Wobbrock
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Staff_DR_017(AVA) Attachment A Page 2 of 5
Jim Hempstead
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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