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S&P further raises AEP, subsidiaries following close of merchant sale

S&P Global Ratings on Feb. 2 raised its issuer credit ratings on American Electric Power Co. Inc. and all of the company's subsidiaries to A- from BBB+.

The rating agency said the action reflects the closing of AEP's sale of 5,200 MW of merchant generation to a private equity joint venture. AEP on Jan. 30 said it completely divested four Midwest generating plants to the joint venture formed by Blackstone Group LP and ArcLight Capital Partners LLC for $2.1 billion.

"The asset sale, along with the impairment of AEP's remaining merchant generation assets totaling about 2,700 MW of capacity in third quarter 2016, is in line with AEP's strategy to exit the merchant generation business and focus primarily on regulated utility operations," S&P Ratings said in a news release. "AEP plans to use the $1.6 billion in after-tax sales proceeds to supplement funding needs, reducing the total amount of debt that needs to be issued, and supporting its financial risk profile."

S&P also removed AEP and its subsidiaries from CreditWatch, where they were placed in September 2016 with positive implications. The outlook is stable.

"The stable outlook on AEP and its subsidiaries reflects the company's improved business risk profile that now benefits from a preponderance of regulated utility operations while generating FFO to debt of about 18% on a consistent basis," the rating agency said.

AEP subsidiaries affected by the recent rating action are Appalachian Power Co., Indiana Michigan Power Co., Kentucky Power Co., Ohio Power Co., Public Service Co. of Oklahoma, Southwestern Electric Power Co., AEP Texas Central Co., AEP Texas North Co., AEP Transmission Co. LLC and Wheeling Power Co.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.