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WWP Cuts Dividend, Sports a New Look

WWP Cuts Dividend, Sports a New Look

Taking its name and direction from its unregulated subsidiary, Washington Water Power announced last week it will be cutting its dividend by 61% and putting the money saved into growing all aspects of its business. The aim is to grow "a bigger and stronger company" and the second priority is speed, the company's new chairman and CEO Tom Matthews said.

"We cannot survive as a small northwestern utility, but we can be THE Northwest Utility," Matthews said in a conference call, describing it as a case of "eat or be eaten." He said Washington Water Power which will take the name Avista Corp. after its energy trading subsidiary next Jan. 1 would be spending between $300 and $400 million a year acquiring generation, pipeline and both gas and electric distribution assets.

The dividend will drop from $1.24 to $0.48, a rate that will yield 2.3% based on last Friday's closing price of $20.875 "placing it more in line with growth-oriented utility companies and still above the dividend yield of the average Standard &amp Poor's 500 company," the announcement said.. (The yield is close to Enron's 2.03, and considerably under the 5% plus registered by utilities such as Baltimore Gas &amp Electric and Houston Power &amp Light). WWP's stock closed Monday after the announcement at $18 and 7/8. The new dividend will be effective for the payout expected Dec. 15, 1998. For now the company will pay its regular quarterly dividend of 31 cents per common share.

WWP has offered to provide a safety net for shareholders who depend on dividend income by offering an exchange of 35% of outstanding common shares for an equal number of mandatorily convertible preferred shares, each of which will pay an annual dividend of $1.24 per share for a period of about three years. At that point the new-issue shares will automatically convert back to common stock on a one-for-one basis. The plan must receive regulatory approval to be put in place. WWP said if more than 20 million shares are tendered for exchange, they will be subject to proration.

The announcement was made by Matthews, who left Dynegy Corp. to join the Spokane, WA-based utility 45 days ago. The change "immediately improves our cash flows, enhances our ability to acquire needed capital in a cost-effective manner, and establishes a solid foundation for our continued growth and superior financial performance." The aim is "to act quickly and purposefully to capture emerging opportunities....I am growth-oriented by nature and, with our industry in a state or rapid change, we need to make significant moves within the next year to position our company to succeed."

At the end of July the utility reported increased earnings for the first half over 1997, but said because of lower streamflow levels for the hydroelectric generating system corporate earnings for the year were not projected to match expectations. Washington Water Power has had to buy power to supply customers and it has been expensive.

Standard &amp Poor's revised its ratings outlook for WWP to negative from stable. S&ampP also affirmed WWP's single-'A' senior secured and corporate credit ratings and single-'A'-minus senior unsecured, preferred stock, and bank loan ratings.

WWP's strategy "is likely to accelerate the evolution toward a riskier business profile and to pressure key financial measures, which are already somewhat weak for the current ratings. WWP has already placed increasing emphasis on inherently riskier nonregulated business activities, mainly those of Avista Energy, the energy trading unit," S&ampP said.

Meanwhile, Moody's Investors Service confirmed the securities ratings of Washington Water Power Company (Sr. Secured at A3) and maintained its stable rating outlook, saying that despite its more aggressive plans Moody's expects WWP's "penchant for discipline in its business transactions will allow its future financial performance to support its current rating. Moody's will carefully consider the size and nature of the businesses that the company may invest in as it pursues its current business strategy. An unexpected divergence from management's past tendency to conservatively finance its investments could pressure the rating."

Ellen Beswick

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