Dominion Power 2007 Annual Report Download - page 48

Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
At December 31, 2007, the remaining stock repurchase
authorization provided by our Board of Directors is the lesser of
54 million shares or $2.7 billion of our outstanding common
stock.
Credit Ratings
Credit ratings are intended to provide banks and capital market
participants with a framework for comparing the credit quality of
securities and are not a recommendation to buy, sell or hold secu-
rities. We believe that the current credit ratings of Dominion and
Virginia Power (the Dominion Companies) provide sufficient
access to the capital markets. However, disruptions in the banking
and capital markets not specifically related to us may affect the
Dominion Companies’ ability to access these funding sources or
cause an increase in the return required by investors.
Both quantitative (financial strength) and qualitative (business
or operating characteristics) factors are considered by the credit
rating agencies in establishing an individual company’s credit
rating. Credit ratings should be evaluated independently and are
subject to revision or withdrawal at any time by the assigning
rating organization. The credit ratings for the Dominion
Companies are most affected by each company’s financial profile,
mix of regulated and nonregulated businesses and respective cash
flows, changes in methodologies used by the rating agencies and
“event risk,” if applicable, such as major acquisitions or dis-
positions.
Credit ratings for the Dominion Companies as of February 1,
2008 follow:
Fitch Moody’s
Standard
& Poor’s
Dominion Resources, Inc.
Senior unsecured debt securities BBB+ Baa2 A-
Junior subordinated debt securities BBB Baa3 BBB
Enhanced junior subordinated notes BBB Baa3 BBB
Commercial paper F2 P-2 A-2
Virginia Power
Mortgage bonds AA3 A
Senior unsecured (including tax-exempt)
debt securities BBB+ Baa1 A-
Junior subordinated debt securities BBB Baa2 BBB
Preferred stock BBB Baa3 BBB
Commercial paper F2 P-2 A-2
As of February 1, 2008, Fitch Ratings Ltd. (Fitch), Moody’s
and Standard & Poor’s maintain a stable outlook for their ratings
of the Dominion Companies.
As a result of the merger of CNG with Dominion in June
2007, all of CNG’s former rights and obligations under its
indentures have been assumed by Dominion. Subsequent to the
merger, Moody’s lowered its rating of CNG Senior Unsecured
debt from Baa1 to Baa2 to equal their rating of Dominion’s
Senior Unsecured debt.
In December 2007, Standard & Poor’s raised its corporate
credit rating on the Dominion Companies to ‘A-’ from ‘BBB’ to
reflect the companies’ lower risk profile. Standard & Poor’s also
affirmed the ‘A-2’ commercial paper rating for both companies.
Generally, a downgrade in an individual company’s credit
rating would not restrict its ability to raise short-term and long-
term financing as long as its credit rating remains “investment
grade,” but it would increase the cost of borrowing. We work
closely with Fitch, Moody’s and Standard & Poor’s with the
objective of maintaining our current credit ratings. In order to
maintain our current ratings, we may find it necessary to modify
our business plans and such changes may adversely affect our
growth and earnings per share.
Debt Covenants
As part of borrowing funds and issuing debt (both short-term and
long-term) or preferred securities, the Dominion Companies
must enter into enabling agreements. These agreements contain
covenants that, in the event of default, could result in the accel-
eration of principal and interest payments; restrictions on dis-
tributions related to our capital stock, including dividends,
redemptions, repurchases, liquidation payments or guarantee
payments; and in some cases, the termination of credit commit-
ments unless a waiver of such requirements is agreed to by the
lenders/security holders. These provisions are customary, with
each agreement specifying which covenants apply. These provi-
sions are not necessarily unique to the Dominion Companies.
Some of the typical covenants include:
‰The timely payment of principal and interest;
‰Information requirements, including submitting financial
reports filed with the SEC to lenders;
‰Performance obligations, audits/inspections, continuation of
the basic nature of business, restrictions on certain matters
related to merger or consolidation, restrictions on disposition
of all or substantially all of our assets;
‰Compliance with collateral minimums or requirements
related to mortgage bonds; and
‰Limitations on liens.
We are required to pay minimal annual commitment fees to
maintain our credit facilities. In addition, our credit agreements
contain various terms and conditions that could affect our ability
to borrow under these facilities. They include maximum debt to
total capital ratios and cross-default provisions.
As of December 31, 2007, the calculated total debt to total
capital ratio for our companies, pursuant to the terms of the
agreements, was as follows:
Company
Maximum
Ratio
Actual
Ratio(1)
Dominion Resources, Inc. 65% 58%
Virginia Power 65% 47%
(1) Indebtedness as defined by the bank agreements excludes junior sub-
ordinated notes payable reflected as long-term debt in our Consolidated
Balance Sheets.
These provisions apply separately to the Dominion Compa-
nies. If any one of the Dominion Companies or any of that
specific company’s material subsidiaries fail to make payment on
various debt obligations in excess of $35 million, the lenders
could require that respective company to accelerate its repayment
of any outstanding borrowings under the credit facility and the
lenders could terminate their commitment to lend funds to that
company. Accordingly, any default by Dominion will not affect
the lender’s commitment to Virginia Power. However, any
default by Virginia Power would affect the lenders’ commitment
to Dominion under the joint credit agreement.
In June 2006 and September 2006, we executed Replacement
Capital Covenants (RCCs) in connection with our offering of
46 Dominion 2007 Annual Report