Fitch Ratings Comments On Aquila Announcement

Business Wire, April 30, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--April 30, 2002

Fitch Ratings views Aquila, Inc. (ILA)'s announcement of an agreement to acquire independent power producer Cogentrix as credit neutral to ILA's credit quality.

Fitch currently rates ILA as follows:

--Senior unsecured debt 'BBB-';

--Preferred stock 'BB ';

--Commercial paper 'F3'.

--Rating Outlook Stable.

Earlier today, ILA announced it had reached a definitive agreement to acquire Cogentrix for $415 million, plus the assumption of $355 million of recourse debt and approximately $770 million of non-recourse project level debt. The $415 million purchase price is comprised of $375 million at closing, plus payments of $20 million at the end of 2004 and 2005. The acquisition will initially be funded with a commercial bank facility, which will be refinanced shortly after closing through the issuance of mandatory convertible securities and equity. Additional investments will be required in the next year to fund equity commitments into the project, currently estimated at around $150 million. To comply with PURPA regulation, Cogentrix will sell certain qualifying facility (QF) interests to General Electric (GE) Capital Corporation for $280 million prior to closing.

The portfolio that ILA will acquire from Cogentrix consists of 2,278 megawatts net (MW) of operating capacity in the U.S. with long-term contracts in place to sell roughly 97% of the output to counterparties, including both utilities and energy marketers. In addition, there are two projects under construction (1,215 MW net) with some completion risks that Fitch has considered. Completion risk and risks associated with the weak financial condition of the general contractor are mitigated in part by the low acquisition price to be paid by ILA and by other contract management practices Cogentrix has put in place. While the transaction will result in a modest increase in ILA's financial leverage and moderate completion risks, the benefits of the acquisition relate to the strong base of contractual revenues and the opportunity to integrate the assets over the longer term with ILA's trading and risk management services. The transaction, which is subject to Hart-Scott-Rodino review and FERC approval, is expected to close by third quarter 2002.

Recently, ILA announced that it expects to report significantly weaker results for the first quarter of 2002, primarily attributable to lower commodity prices and volatility, warmer weather and delays related to the Midlands acquisition in the UK. Expected earnings for the year have also been reduced. Positively, the company has secured two new revolving credit lines totaling $650 million, consisting of a 364-day $325 million tranche and a three-year $325 million tranche. Additionally, ILA's balance sheet has improved with more than $1 billion of equity issuances throughout 2001 and early 2002, including $278 million of net proceeds in January of this year.

ILA has revised its previous agreement with FirstEnergy for the acquisition of Avon Energy Partners Holdings (Avon), the parent company of Midlands Electricity, plc. ILA will now acquire 79.9% of Avon for a purchase price of $264 million, consisting of $150 million at closing, and the remaining $114 million to be received in six annual installments of $19 million each, beginning a year after closing. The Avon acquisition transaction, which recently received final regulatory approvals, is expected to close on or about May 8, 2002. Fitch will continue to monitor developments in ILA's financial condition and business position.

ILA is a wholesale energy merchant whose unregulated activities include energy marketing and trading, as well as risk management products and services. ILA also operates electricity and natural gas distribution networks in seven states and in Canada, New Zealand and Australia.