Moody's downgrades Allete

Moody's Investors Service said it downgraded the long-term ratings of Allete, Inc., including its issuer rating to Baa1 from A3.

The agency also affirmed the ratings of its subsidiary Superior Water, Light and Power Co., including its A3 issuer rating.

Allete's P-2 short-term rating for commercial paper also was affirmed.

The outlook was changed to stable from negative.

The company's one-notch downgrade reflects the combined impact of last year's adverse general rate case outcome at its primary subsidiary, Minnesota Power, as well as a sustained deterioration in its debt coverage ratios going forward, Moody's said.

In January 2018, Minnesota Power completed its first general rate case in seven years, the agency explained.

The regulatory order approved a $12.6 million rate increase that was materially lower than the company's original $55 million original request, Moody's said.

It also was well below the $35 million interim rate increase levied on rate payers shortly after the case was filed, leading to a net reduction in customer rates, the agency said.

The order also denied certain credit supportive cost recovery mechanisms, which are available to other utilities in Minnesota, Moody's added.

Although Allete has taken actions to reduce its operating and maintenance expenses to mitigate the lower approved revenues, the agency said it doesn't expect the cost containment measures to be sufficient to offset the negative cash flow impact of both the rate case outcome and the passage of federal tax reform in December 2017.

The ratings also reflect the very strong financial ratios the company consistently produces with cash flow pre-working capital-to-debt at higher than 30% in recent years, Moody's said.

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