Vectren 2012 Annual Report Download - page 24

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impact on utility industry spending for construction projects, demand for natural gas, electricity, and coal, and spending on
performance contracting and renewable energy expansion. It is also possible that unfavorable conditions could lead to
reductions in the value of certain nonutility real estate and other legacy investments.
Financial market volatility could have adverse impacts.
The capital and credit markets may experience volatility and disruption. If market disruption and volatility occurs, there can be
no assurance that the Company, or its unconsolidated affiliate, ProLiance, will not experience adverse effects, which may be
material. These effects may include, but are not limited to, difficulties in accessing the short and long-term debt capital markets
and the commercial paper market, increased borrowing costs associated with current short-term 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 A3 A-
Utility Holdings commercial paper program P-2 A-2
SIGECO’s senior secured debt A1 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.
If the rating agencies downgrade the Company’s credit ratings, particularly below investment grade, or initiate negative outlooks
thereon, or withdraw Vectren’s ratings or, in each case, the ratings of its subsidiaries, it may significantly limit Vectren’s access
to the debt capital markets and the commercial paper market, and the Company’s borrowing costs would increase. In addition,
Vectren would likely be required to pay a higher interest rate in future financings, and its potential pool of investors and funding
sources would likely decrease. Finally, there is no assurance that the Company will have access to the equity capital markets to
obtain financing when necessary or desirable.
Utility Operating Risks
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, polycarbonate resin (Lexan®) and plastic products; gypsum products; electrical equipment, metal
specialties, glass and steel finishing; aluminum smelting and recycling; pharmaceutical and nutritional products; gasoline and oil
products; ethanol; and coal mining.
Vectren’s regulated utilities operate in an increasingly competitive industry, which may affect its future earnings.
The utility industry has been undergoing structural change for several years, resulting in increasing competitive pressure faced
by electric and gas utility companies. Increased competition may create greater risks to the stability of Vectren’s earnings
generally and may in the future reduce its earnings from retail electric and gas sales. Currently, several states, including Ohio,