Fitch Rates Alabama Power's 5.625% $150MM Non-Cumulative Preferred Stock Hybrids 'A'; Outlook Stable

Business Wire, Dec 8, 2006

NEW YORK -- Fitch has assigned an 'A' rating to Alabama Power Company's (APC's) $150 million of new 5.625% preferred stock. APC may redeem the preferred stock, in whole or in part, on or after Jan. 1, 2012. Dividends on the preferred stock are not cumulative, and accordingly, if APC's Board of Directors does not declare a dividend or declares less than a full dividend on the new preferred stock for a quarterly dividend period, holders will have no right to receive a dividend or the full dividend, as the case may be, for that period. APC intends to redeem or repurchase shares of the new preferred stock only from proceeds from the receipt of capital contributions or the issuance of new capital offerings whose equity treatment at the time of such redemption or repurchase is equal to, or greater than, the shares of new preferred stock being redeemed or repurchased, which proceeds are received within 180 days prior to the applicable redemption or repurchase date. The proceeds from the sale of the new preferred stock will be used to repay a portion of its outstanding short-term indebtedness and for other general corporate purposes, including APC's continuous construction program. The Rating Outlook of APC is Stable.

Based upon Fitch's new hybrid rating criteria published on Sept. 27, 2006 (available on the Fitch Ratings web site www.fitchratings.com), Fitch has assigned the preferred stock to class E and will allocate 100% of the principal to adjusted equity and 0% to adjusted debt in evaluating the financial leverage of APC. Key features supporting the equity credit class of the preferred stock are its deeply subordinated ranking, flexibility to avoid periodic payments, perpetual maturity with no investor put and lack of covenants or events of default. The new preferred stock will rank junior to APC's existing preferred stock and Class A preferred stock and senior to APC's common stock.

The ratings of APC are supported by a relatively low cost coal and nuclear-dominated generation fleet, stable coverage credit ratios that are consistent with the rating category targets and a constructive state regulatory environment in Alabama with no prospects for retail competition on the horizon. APC benefits from the operational and financial efficiencies gained from an association with Southern Company (Southern, Issuer Default Rating of 'A' by Fitch with a Stable Outlook).

Fitch's rating concerns relate to the higher than average concentration of industrial customers, lags in the recovery of rising fuel and operating and maintenance costs, the susceptibility of the territory to hurricanes, and litigation risks associated with environmental matters.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.