S&P: Duke Energy charge negative for credit

Standard & Poor's said Friday that Duke Energy Corp.'s (BBB+/negative/A-2) announcement that the company will incur a $3.3 billion pretax charge in fourth-quarter 2003 relating mainly to the merchant generation assets in the southeastern United States is a negative credit event.

S&P said it views the charge as reflecting poorly on strategic decision-making in the past. At the same time, however, the impairment points to a more focused merchant generation approach, as it reduces the merchant generation fleet capacity by about one-third.

Nevertheless, S&P expects that the merchant generation operations will continue to adversely affect the consolidated business and financial profiles over the intermediate term.

The impairment is not expected to provide any material cash flow savings, as the plants affected were not operating. However, if the plants are sold off as planned, then S&P expects that any proceeds will be used to reduce debt in an effort to provide support to Duke Energy's consolidated financial profile, which is not consistent with current ratings.

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