Progress Energy 2007 Annual Report Download - page 48

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MANAGEMENT’S DISCUSSION AND ANALYSIS
46
On July 13, 2007, Fitch Ratings upgraded the long-term
ratings of both PEC and PEF to A- from BBB+ and revised
their rating outlooks to stable from positive. Fitch Ratings
cited cash flow coverage and leverage credit ratios more
consistent with the A rating category at the Utilities, sound
utility operations and operations in historically favorable
regulatory environments as the primary factors for the
upgrades. Fitch Ratings also noted lowered group linkage
risks for PEC and PEF resulting from improved business
risk at the Parent due to the sale or wind-down of non-
utility operations and reduced debt.
On June 15, 2007, Moody’s upgraded the corporate credit
rating for PEC to A3 from Baa1 and revised its outlook
to stable from positive. Moody’s cited strong cash flow
coverage measures and financial metrics, operations
in constructive regulatory environments with growing
service territories and lower debt and business risk at the
Parent as the primary factors in the upgrade.
On March 15, 2007, S&P upgraded corporate credit
ratings to BBB+ from BBB at Progress Energy, Inc., PEC
and PEF and revised each company’s outlook to stable
from positive. S&P cited the significant reduction in our
holding company debt and the moderation of business
risk achieved by our renewed focus on our regulated
utilities as the primary factors in the upgrade.
OFF-BALANCE SHEET ARRANGEMENTS AND
CONTRACTUAL OBLIGATIONS
Our off-balance sheet arrangements and contractual
obligations are described below.
Guarantees
As a part of normal business, we enter into various
agreements providing future financial or performance
assurances to third parties that are outside the scope
of FASB Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.” These
agreements are entered into primarily to support or
enhance the creditworthiness otherwise attributed to
Progress Energy or our subsidiaries on a stand-alone
basis, thereby facilitating the extension of sufficient credit
to accomplish the subsidiaries’ intended commercial
purposes. Our guarantees include standby letters of
credit, surety bonds, performance obligations for trading
operations and guarantees of certain subsidiary credit
obligations. At December 31, 2007, we have issued
$481 million of guarantees for future financial or
performance assurance. Included in this amount is
$300 million of guarantees of certain payments of two
wholly owned indirect subsidiaries issued by the Parent
(See Note 23). We do not believe conditions are likely
for significant performance under the guarantees of
performance issued by or on behalf of affiliates.
At December 31, 2007, we have issued guarantees and
indemnifications of certain asset performance, legal,
tax and environmental matters to third parties, including
indemnifications made in connection with sales of
businesses, and for timely payment of obligations in
support of our nonwholly owned synthetic fuels
operations as discussed in Note 22C.
Market Risk and Derivatives
Under our risk management policy, we may use a
variety of instruments, including swaps, options and
forward contracts, to manage exposure to fluctuations
in commodity prices and interest rates. See Note 17 and
“Quantitative and Qualitative Disclosures About Market
Risk” for a discussion of market risk and derivatives.
Contractual Obligations
We are party to numerous contracts and arrangements
obligating us to make cash payments in future years.
These contracts include financial arrangements such
as debt agreements and leases, as well as contracts
for the purchase of goods and services. Amounts in the
following table are estimated based upon contractual
terms, and actual amounts will likely differ from amounts
presented below. Further disclosure regarding our
contractual obligations is included in the respective
notes to the Consolidated Financial Statements. We
take into consideration the future commitments when
assessing our liquidity and future financing needs. The
following table reflects Progress Energy’s contractual
cash obligations and other commercial commitments at
December 31, 2007, in the respective periods in which
they are due: