SW Gas rating outlook cut

Kevin Rademacher

Monday, March 1, 2004 | 11:15 a.m.

Moody's Investors Service has lowered the outlook on Southwest Gas Corp.'s debt rating from stable to negative, a move that is not immediately expected to affect the Las Vegas company's financing costs.

In making the change Friday, Moody's cited the Las Vegas natural gas company's low 2003 earnings, warmer weather that reduced demand and limited profitability, and the high capital expenditures necessary to keep up with a growing customer base.

Moody's did leave Southwest Gas' debt rating at an investment-grade level of Baa2.

"Immediately, it should not have any financial impact on the company," said Jake Mercer, a utilities analyst with Piper Jaffray & Co. "If Moody's had actually downgraded the company, that would have resulted in a potentially immediate financial impact."

Instead, he said, the company's debt-related costs remain "unchanged on the news."

Southwest Gas last month reported fourth-quarter net income of $34.5 million, down from $37.8 million for the same 2002 quarter. For the year the company estimated that the effect of weather on earnings was about 59 cents per share on full-year 2003 results of $1.13, down from $1.32 in 2002.

Moody's did credit the company for "some good strides in implementing cost-curbing measures such as refinancing (debt) at lower rates of interest."

Southwest Gas spokesman Roger Buehrer said the company was disappointed with the news but encouraged that the rating agency had correctly identified the cause of the shortfall.

"It's always disappointing when you put on a negative outlook," he said. "But they did not downgrade our bond rating and they realized that the results were solely based on the weather situation. ... This last year was an abnormal year."

Mercer said attention will be focused on long-term efforts to stabilize the company's financial results, including the filing of a general rate case to collect some of the costs of meeting customer demand. Concerns over the rate case could be magnified among rating agencies because of large regulatory recovery disallowances handed down in recent years by the state Public Utilities Commission in cases involving Nevada Power Co., he said.

"Growth is good, but they do have rate case risks," Mercer said. "If (Southwest Gas) asks for a large recovery and doesn't get it, growth becomes bad. ... Rating agencies are well aware of the problems utilities have had in Nevada."

Buehrer said Southwest Gas has notified the PUC that it will file a general rate case, possibly within the next 45 days.