Fitch Ratings Affirms Washington Gas Light At 'AA-'; WGL Holdings 'A+'

Business Wire, April 25, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--April 25, 2002

Fitch Ratings has affirmed the credit ratings of Washington Gas Light Co. (Washington Gas) and WGL Holdings, Inc. (WGL) as follows: Washington Gas's unsecured notes affirmed at 'AA-', preferred stock at 'A ', and commercial paper at 'F1 '; and WGL's senior unsecured debt (implied) at 'A ' and commercial paper at 'F1'. The Rating Outlook for both companies is Stable. Ratings affirmations for Washington Gas and WGL are based on a recent review of operating results and updated business plans.

Washington Gas's ratings are supported by the company's strong financial profile and favorable operating characteristics. During the fiscal year ending Sept. 30, 2001, operating EBIT and EBITDA coverage of interest were 4.0 times (x) and 5.4x, respectively. However, these ratios have been since pressured as a result of the record 2001-2002 warm winter, with the company's weather insurance policy mitigating some of the revenue losses. For the twelve-month period ended Dec. 31, 2001, which includes part of the winter heating season, EBIT and EBITDA totaled approximately 3.5x and 5.0x, respectively.

Washington Gas's credit profile has been solidified as a result of its November 2000 restructuring that separated out the company's former wholly-owned unregulated subsidiaries under a new holding company, WGL Holdings, Inc. Though the unregulated subsidiaries were not yet significant contributors to consolidated results, there will be greater predictability of cash flows going forward.

The company's performance is inherently sensitive to regional weather conditions since the majority of its business is derived from the space heating needs of its residential and small commercial customers. Despite several abnormally warm heating seasons between 1998-2002, Washington Gas's credit measures have remained among the strongest in the gas industry. Mitigating this future weather risk is a five-year insurance policy purchased in October 2000 that was designed to cover half of the company's net revenue exposure to warmer than normal heating degree days. As of March 27, 2002, this insurance policy will provide about $15 million in coverage ($8-$9 million on an after-tax basis) for the 2001-2002 winter, which was 15% warmer than normal. This amount of coverage assumes normal weather for the remainder of the fiscal year.

Washington Gas has filed rate cases with regulators in both the District of Columbia and Maryland for revenue increases of $16 million and $31 million, respectively. An additional rate filing in Virginia is anticipated during the spring of 2002. Fitch does not expect the outcome of these applications to impact credit ratings.

Washington Gas's short-term borrowing requirements are seasonal and generally liquidated each year after the winter heating season. Short-term financing needs are satisfied through the sale of commercial paper, which is at least 80% backed by lines of credit and a 364-day bank revolver. Going forward, Fitch expects common equity as a percentage of capitalization in the mid-50s. The majority of the company's capital expenditures (more than $600 million is expected over the next five years) will be used to add new customers. Moderate ongoing external financing may be necessary to fund Washington Gas's anticipated capital spending in the coming years.

The ratings of WGL, the parent company to Washington Gas, are driven largely by the stable cash flows derived from its regulated gas distribution utility. The overwhelming majority of WGL's assets and revenues are associated with the regulated utility. Unregulated businesses presently account for a minimal portion of operations in terms of both income and assets, and are expected to grow moderately over the next five years, equaling less than 10% of total earnings by 2006.