Standard & Poor's Corp. cut the New York Power Authority debt rating to AA-minus from AA, citing shrinking revenues and increased price competition in the wholesale power market.
The move, announced late Friday, covers $2.2 billion of the authority's parity bonds as well as a $1.13 billion refunding scheduled for pricing today. The agency's long-term credit outlook is negative.
In the same announcement, Standard & Poor's downgraded $115 million of the authority's adjustable-rate tender notes to A-plus/A-1 from AA-minus/A-1 plus.
The downgradings cames as the authority's chairman, Richard Flynn, is under increased scrutiny from the administration of Gov. Mario M. Cuomo for his management of the state agency and the selection of the refunding's bond syndicate. Officials in the state budget division could not be reached for comment yesterday.
In a press release Standard & Poor's said the "downgrade reflects increased competitive pressure, particularly in the wholesale market, exacerbated by [the authority's] troubled nuclear operations, which over the past two years have resulted in increased operating cost, reduce revenues, and increased rate pressure."
During the past two years, the authority's James A. Fitzpatrick nuclear plant and one of its Indian Point nuclear plants have been shut down. The Fitzpatrick plant is now back in service, but the Indian Point plant has been closed since February.
"The operational difficulties have led to increased costs for [the Power Authority] and its customers that contract power for these units," the rating agency said.
The authority is still one of the state's highest-rated agencies to issue bonds. Standard & Poor's said its rating "is supported by [the authority's] significant low-cost hydroelectric capacity, strong historical financial position, and liquidity." The authority is rated AA by Moody's Investors Service.
Stephen Shoenholz, a spokesman for the Power Authority, criticized Standard & Poor's for " not addressing some of the positive factors" of the Power Authority's credit in Friday's report.
Shoenholz said, for example, that he was "disappointed" that the rating agency did not mention management changes at the authority. These changes are designed to make the agency's troubled nuclear operations more efficient, he said. The report also failed to recognize that the authority has eliminated 400 full-time positions, a move that will save the agency about $40 million a year, he said.
Shoenholz said underwriters at PaineWebber Inc., the refunding's bookrunning senior manager, believe the downgrade will have "a minimal impact on the pricing" of today's scheduled issue.
Bond market participants interviewed yesterday confirmed Shoenholz's assessment. They said they expected strong demand for the issue because of the short supply of above-average New York State-related paper. "Buyers save their money for a deal like this," one player said. "There is very little high-quality New York stuff around.