Lingering concerns in the minds of some investors as to whether American Electric Power (AEP) is facing a liquidity crunch should be eased in the wake of a recently close debt offering by four of the company’s subsidiaries that yielded more than $2 billion in proceeds, a top official with AEP told a gathering of investment professionals on Thursday.

AEP announced on Thursday that four of its regulated utility subsidiaries this week issued unsecured senior notes totaling more than $2 billion in proceeds. 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.

“These were done principally in 10 and 30 year tranches at very attractive prices — 5 1/2% for the 10-year paper and 6.6% for the 30-year paper — these are very attractive spreads,” said AEP Treasurer Armando Pena, in an appearance before UBS Warburg’s “2003 Natural Gas & Electric Utilities” conference in New York City.

“So the overhang that was in somebody’s mind that, you know, AEP had [a] liquidity issue in accessing capital markets, I think, should have a very good data point now to maybe rethink that because the issues were extremely well received,” Pena went on to say.

“In the case of the Ohio issues, they were 10 times oversubscribed,” he noted. “In the case of the Texas issues, almost four times oversubscribed.”

Proceeds from the offerings will largely go toward paying down short-term debt, including AEP’s $1.725 billion corporate separation facility, of which $1.3 billion is outstanding. “There is no longer a need for that facility because it’s purpose was to fund the transitional debt for those four companies in Ohio and Texas,” Pena said.

The facility, which was slated to mature in April 2003, will be paid off. “So that removes that uncertainty about liquidity related to that facility.”

Moody’s Investors Service earlier this month downgraded the debt ratings of AEP and several subsidiaries. The ratings agency listed a number reasons behind the downgrades, including weak operating cash flow relative to consolidated debt levels at AEP, modest free cash flow levels expected to be generated from AEP’s core utility business and execution risk associated with the company’s plan to strengthen the company’s balance sheet, particularly as it relates to asset sales (see Power Market Today, Feb. 11).

In January, AEP management announced that it expects to recommend the company’s board of directors reduce AEP’s dividend approximately 40% to $0.35 per share beginning in the second quarter. The current dividend is $0.60 per share per quarter. The reduction will result in annual cash savings of approximately $340 million, immediately improve retained earnings and create free cash flow that can be used to pay down debt (see Power Market Today, Jan. 27).

AEP also announced in January that it would divest of non-core assets and return to the more traditional model of a regulated utility with a small commercial group that ensures maximum value for the output of the company’s generation assets. Funds generated from the sale of non-core assets will be used to reduce debt.

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