Vectren 2008 Annual Report Download - page 23

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21
demand for natural gas and electricity. The recent economic downturn may have some negative impact on both gas
and electric large customers. This impact may include tempered growth, significant conservation measures, and
perhaps even plant closures or bankruptcies. Deteriorating economic conditions may also lead to lower residential
and commercial customer counts and thus lower Company revenues. It is also highly possible that a prolonged
recession could result in increased costs including pension costs, interest costs, and bad debt expense in excess of
historical levels.
Further, the Company’s nonutility portfolio may also be negatively impacted. Economic declines may be
accompanied by a decrease in demand for products and services offered by nonutility operations and therefore
lower revenues for those products and services. The recent economic downturn may have some negative impact on
utility industry spending for construction projects, demand for coal, and spending on performance contracting and
renewable energy expansion. It is also possible that a prolonged recession could result in further reductions in the
value of certain nonutility real estate and other legacy investments.
Vectren’s gas and electric utility sales are concentrated in the Midwest.
The operations of the Company’s regulated utilities are concentrated in central and southern Indiana and west
central Ohio and are therefore impacted by changes in the Midwest economy in general and changes in particular
industries concentrated in the Midwest. These industries include automotive assembly, parts and accessories, feed,
flour and grain processing, metal castings, aluminum products, appliance manufacturing, polycarbonate resin
(Lexan®) and plastic products, gypsum products, electrical equipment, metal specialties, glass, steel finishing,
pharmaceutical and nutritional products, gasoline and oil products, ethanol and coal mining. While no one
industrial customer comprises 10 percent of consolidated revenues, the top five industrial electric customers
comprise approximately 17 percent of electric utility revenues, and therefore any significant decline in their
collective revenues could adversely impact operating results.
Current financial market volatility could have adverse impacts.
The capital and credit markets have been experiencing volatility and disruption. If the current levels of market
disruption and volatility worsen, there can be no assurance that the Company, or its unconsolidated affiliates, will
not experience adverse effects, which may be material. These effects may include, but are not limited to,
difficulties in accessing the debt capital markets and the commercial paper market, increased borrowing costs
associated with current debt obligations, higher interest rates in future financings, and a smaller potential pool of
investors and funding sources. Finally, there is no assurance the Company will have access to the equity capital
markets to obtain financing when necessary or desirable.
A downgrade (or negative outlook) in or withdrawal of Vectren’s credit ratings could negatively affect its
ability to access capital and its cost.
The following table shows the current ratings assigned to certain outstanding debt by Moody’s and Standard &
Poor’s:
Current Rating
Standard
Moody’s & Poor’s
Utility Holdings and Indiana Gas senior unsecured debt Baa1 A-
Utility Holdings commercial paper program P-2 A-2
SIGECO’s senior secured debt A-3 A
The current outlook of both Standard and Poor’s and Moody’s is stable and both categorize the ratings of the above
securities as investment grade. A security rating is not a recommendation to buy, sell, or hold securities. The
rating is subject to revision or withdrawal at any time, and each rating should be evaluated independently of any
other rating. Standard and Poor’s and Moody’s lowest level investment grade rating is BBB- and Baa3,
respectively.
Vectren may be required to obtain additional permanent financing (1) to fund its capital expenditures, investments
and debt security redemptions and maturities and (2) to further strengthen its capital structure and the capital