Credit-Rating Agencies Express Concern About Avista

Standard & Poor’s issued a middling rating Thursday on new notes issued by Avista Corp. and said the outlook for the company is negative.

The “BBB” rating given $175 million in medium-term notes Avista sold through a consortium led by Morgan Stanley Dean Witter reflect weakened finances in the wake of major losses from electricity trading activity this spring. The notes will be used to retire short-term debt.

Also, S&P said, “Continued funding needs related to Avista’s nonregulated ventures and a change in the company’s nonregulated nationwide trading strategy during 1999 have contributed to increased risk in the company’s business profile.”

Another credit-rating agency, Fitch, issued its own “BBB” rating on the notes, citing increased volatility in Avista’s formerly stable cash flow.

Fitch had lowered Avista’s rating in June for the second time in one year due to losses in energy trading and the costs associated with its subsidiaries.

Avista, without referring to those losses, Wednesday disclosed the departure of three executives of Avista Utilities. Other staffing changes were also announced.

Vice President JoAnn Matthiesen is retiring as of Oct. 1, not resigning, as was reported Thursday.

Joan Goodman, an analyst for the Pershing Division of Donaldson Lufkin Jenrette, said the Avista Utilities executives were hardworking, but were overwhelmed by a Western energy market that became extremely volatile this spring after years of relative stability.

“They learned a very hard lesson,” she said. “Everybody thinks they are good at trading, but they’re not.”

Goodman said Avista still has several strengths, but may have to merge or find a partner if its fortunes do not improve.

“It’s been a very difficult transition,” she said.

According to a Dow Jones report, S&P is concerned about the effect the losses from Avista Utilities’ energy trading - $126 million in the second quarter - will have on rulings due soon on proposed electricity and natural gas rate increases in Washington state.

Avista managers must focus on stabilizing the company’s credit measures, S&P said.