UtiliCorp to Spin off Aquila Next Year

Unable to find a suitable generation partner for its high flying trading arm, UtiliCorp United Inc. instead will hold an initial public offering for a portion of subsidiary Aquila Energy Corp. and then spin off the remaining shares next year to its shareholders in a tax-free distribution. The result will be two stand-alone publicly traded companies, both based in Kansas City.

The company's board of directors last week approved a two-stage plan that includes holding an IPO for about a 19.9% interest in Aquila. Proceeds from the IPO would be used by Aquila to repay debts it owes to UtiliCorp, the company said. The value is estimated to be up to $425 million of Aquila Class A shares.

"First and foremost, these transactions will increase Aquila's capital financing flexibility by allowing Aquila to independently access the capital markets," UtiliCorp CEO Richard C. Green Jr. said. "The separation also will increase Aquila's strategic focus and provide a targeted investment for our shareholders."

Robert K. Green, COO of UtiliCorp and chairman of Aquila, said that Aquila's marketing and risk management business and its electricity and natural gas asset management business were "all quite different in nature from UtiliCorp's regulated utility business." He said one of the goals from the IPO would be to "increase the speed at which Aquila can respond to the needs of its customers and to changes in the marketplace."

Underwriting will be led by Lehman Brothers and Merrill Lynch & Co. Additional underwriters include Salomon Smith Barney, Chase H&Q and Credit Lyonnais Securities Inc.

In August, UtiliCorp said it was shopping around for a generator to partner with Aquila, and said it wanted to announce a deal before the end of summer (see NGI, Aug. 14; Aug. 7). CEO Richard Green said at the time that the company was "especially pleased" with the overall health of UtiliCorp, which he said was on a pace to grow at least 8% through the year. Most of the company's improved performance has come this past year from Aquila's gas and power trading.

Last Wednesday, Fitch affirmed the credit rating for UtiliCorp, placing it on a Rating Watch Evolving following the Aquila announcement. Fitch said that UtiliCorp's "credit measures have been stressed recently by the ongoing requirement to support Aquila's aggressive capital spending to acquire merchant generation assets and the working capital demands occasioned by the energy trading and marketing business."

Fitch said the planned spinoff would relieve the "pressures" on UtiliCorp's ratings, but said that the company would "lose the ongoing earnings contributions of this subsidiary. Further debt reductions will be required at UtiliCorp to prevent a decline in credit rating measures and to retain the current credit ratings."

©Copyright 2000 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.