Dominion Power 2006 Annual Report Download - page 48

Creditratings for the Dominion Companies as of February 1,
2007 follow:
Fitch Moody’s
Standard
&Poor’s
Dominion Resources, Inc.
Senior unsecured debtsecurities BBB+ Baa2 BBB
Junior subordinated debt securities BBB Baa3 BB+
Enhanced junior subordinated notes BBB Baa3 BB+
Commercial paper F2 P-2 A-2
Virginia Power
Mortgage bonds AA3A–
Senior unsecured (including tax-exempt)
debt securities BBB+ Baa1 BBB
Junior subordinated debt securities BBB Baa2 BB+
Preferred stock BBB Baa3 BB+
Commercial paper F2 P-2 A-2
CNG
Senior unsecured debtsecurities BBB+ Baa1 BBB
Junior subordinated debt securities BBB Baa2 BB+
Commercial paper F2 P-2 A-2
In November 2006, Standard &Poor’s placed the credit rat-
ings for the Dominion Companies on positive outlook, citing that
the sale of the oil and gas assets would be favorableasit improves
Dominion’s business risk profile by significantly reducing
exposure to this segment toless than 5% of overall cash flow.
Moody’sreaffirmed its credit ratings for the Dominion Compa-
nies, stating that the oil and gas divestiture is apotentially positive
development for the credit,but will not have amaterial effect on
the ratings at this time. Moody’sstated that adivestiture of
Dominion’s oil and gas operations will substantially reduce the
nonregulated revenues, earnings, cash flows and assetsas a
percentageof the consolidated company, which will, in turn, sig-
nificantly lower our overall business and operatingrisk profile.
Fitch reaffirmed its credit ratings for the Dominion Companies,
stating that the closing of the potential oil and gassale would
alleviate several of Fitch’s primary rating concerns and increase
the share of consolidated cash flows from more stable businesses.
Generally, adowngrade in an individual company’s credit
rating would not restrict itsability 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’sand Standard &Poor’s with the
objective of maintaining our current credit ratings. In order to
maintain our current ratings, we mayfindit necessary to modify
our business plans and such changes may adversely affect our
growth and earnings per share.
Debt Covenants
As part of borrowing fundsand 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, liquidationpayments or guarantee
payments; and in some cases, the termination of credit commit-
ments unlessawaiver of such requirements is agreed to by the
lenders/security holders. These provisions are customary, with
each agreement specifying which covenantsapply. 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 theSECtolenders;
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 payminimal 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, 2006, the calculated total debt tototal
capital ratio forour companies, pursuantto the terms of the
agreements,was as follows:
Company
Maximum
Ratio
Actual
Ratio(1)
Dominion Resources, Inc. 65% 54%
Virginia Power 65% 47%
CNG65% 47%
(1) Indebtedness as defined by the bank agreements excludes junior sub-
ordinated notes payable reflected as long-term debt on our Consolidated Bal-
ance Sheets.
These provisions apply separately to the Dominion Compa-
nies. If any oneof the Dominion Companies or any of that
specific company’s material subsidiaries fail to make payment on
various debt obligationsinexcess of $35 million, the lenders
could require that respective company to accelerate its repayment
of any outstanding borrowingsunder thecredit facilityandthe
lenders could terminate their commitment to lend fundstothat
company. Accordingly, any defaults on indebtedness by CNG or
any of its material subsidiaries would not affect the lenders’
commitment to Virginia Power. Similarly, any defaults on
indebtedness by VirginiaPower or any of its material subsidiaries
would not affect the lenders’ commitment to CNG. Likewise, any
default by Dominion will not affect the lender’s commitment to
VirginiaPower or CNG. However, any default by either CNG or
VirginiaPower would also affect in like mannerthelenders’
commitment to Dominion under the joint credit agreement.
In June2006 and September 2006, we executed Replacement
Capital Covenants (RCCs) in connection with our offering of
$300 million of 2006 Series AEnhanced Junior Subordinated
Notes due 2066 (June hybrids) and $500 million of 2006 Series
BEnhanced Junior Subordinated Notes due 2066 (September
hybrids), respectively. We have initially designated the $250 mil-
lion 8.4% Capital Securitiesof Dominion Resources Capital
Trust III that were issued in January 2001 as covered debt under
the RCCs. In the future, we will be allowedtochange the series of
our debt designated as covered debt under the RCCs. Under the
terms of the RCCs, we agreenottoredeem or repurchase all or
part of the June or September hybrids prior to June 30 or Sep-
tember 30, 2036, respectively, unless we issue qualifying securities
to non-affiliates in areplacement offering in the 180 days prior to
DOMINION2006 Annual Report 47