Business Context and Reporting Period
This Form 8-K is a current report filed by Pinnacle West Capital Corporation and its subsidiary, Arizona Public Service Company (APS), on December 21, 2005. The filing addresses a material event regarding the credit ratings of both entities.
Key Financial Metrics and Credit Ratings
The filing does not provide specific revenue, profit, cash flow, or debt figures. The primary financial metric disclosed is the change in credit ratings assigned by Standard & Poor's (S&P).
| Entity | Instrument | Previous Rating | Current Rating |
|---|---|---|---|
| Pinnacle West | Corporate Credit Rating | BBB/Stable/A-2 | BBB-/Stable/A-3 |
| Pinnacle West | Senior Unsecured Debt | BBB- | BB+ |
| Pinnacle West | Commercial Paper | A-2 | A-3 |
| APS | Corporate Credit Rating | BBB/Stable/A-2 | BBB-/Stable/A-3 |
| APS | Senior Unsecured Debt | BBB | BBB- |
| APS | Secured Lease Obligation Bonds | BBB | BBB- |
| APS | Commercial Paper | A-2 | A-3 |
Material Changes
- Pinnacle West: The senior unsecured debt rating was downgraded from BBB- to BB+. This places the rating one level below S&P's investment-grade threshold.
- APS: The senior unsecured debt rating was downgraded from BBB to BBB-. This represents S&P's lowest investment-grade credit rating.
- Outlook: The outlook for both entities remains "Stable."
Guidance, Outlook, and Risks
The filing does not contain forward-looking guidance, management commentary on future operations, or specific risk factors beyond the credit rating downgrade. The downgrade itself is the primary contingency disclosed, indicating increased credit risk for Pinnacle West (now non-investment grade on senior unsecured debt) and heightened risk for APS (at the bottom of investment grade).
Investor Verification Checklist
- Verify the full text of the attached Standard & Poor's press release (Exhibit 99.1) for the specific rationale behind the downgrades.
- Confirm the impact of the BB+ rating on Pinnacle West's cost of borrowing and access to capital markets.
- Review subsequent filings for any covenant breaches triggered by the loss of investment-grade status for Pinnacle West.
- Monitor APS's ability to maintain its BBB- rating, as a further downgrade would also remove it from investment-grade status.