American Electric Power (AEP) last Tuesday said that it has received an underwriting commitment from Citibank N.A. and JP Morgan Chase Bank for a $1.5 billion revolving credit facility, which will replace a $2.5 billion facility that matures in May 2003.

A total of $750 million will mature in May 2004 and the remainder will mature in May 2006. The 2004 portion has a one-year term-out provision.

The $1 billion reduction in the credit facility reflects the company’s lower reliance on short-term debt going forward, AEP noted.

The new facility, combined with an existing $1 billion facility that extends to May 2005 and Euro facilities that expire in October, provides $2.8 billion to support AEP’s commercial paper program and other short-term cash needs.

“We are pleased to have successfully extended this credit facility well before the maturity date,” said Geoffrey Chatas, AEP’s vice president for corporate finance. “This leaves us with $2.8 billion of bank revolving credit facilities with roughly evenly spread maturities over the next three years. The new commitment, together with the $2 billion financing earlier this month for the Ohio and Texas subsidiaries, effectively eliminates the company’s refinancing risk in 2003.”

AEP last month said that four of its regulated utility subsidiaries issued unsecured senior notes totaling more than $2 billion in proceeds (see NGI, Feb. 17).

Specifically, Ohio Power Co. and Columbus Southern Power Co. each issued $500 million in senior notes on Feb. 11. Offerings from AEP Texas Central Co. and AEP Texas North Co. followed on Feb. 12. AEP Texas Central issued a total of $800 million in debt, while AEP Texas North issued $225 million of notes.

The $1.725 billion corporate separation facility that matures in April has been terminated and the $1.3 billion drawn against it has been paid off with proceeds from the $2 billion in long-term financing.

In response to AEP’s announcement, Standard & Poor’s Ratings Services (S&P) noted that the new credit agreement and the “substantial capital market activity” of the company in recent weeks are positive signs that the company’s liquidity position is improving. AEP now has about $3 billion of readily accessible liquid resources, including about $1 billion in cash, S&P said.

The ‘BBB+’ corporate credit rating and the ‘A-2’ commercial paper rating for AEP were placed on Credit Watch with negative implications on Jan. 24, following the large write-offs recorded by the company in its fourth quarter 2002 earnings.

S&P said that resolution of the CreditWatch listing is anticipated soon as the company fully articulates and begins to execute its plan to restore its balance sheet in the wake of the write-offs.

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