The credit ratings of Tucson Electric Power (TEP) remain on CreditWatch with negative implications, reflecting uncertainties regarding the company's credit quality if the leveraged buyout led by KKR is completed. Near term, the critical credit driver for TEP is the proposed LBO. TEP's ratings reflect a low-to-average business profile score for the utility and its parent, UniSource Energy Corp., and weak financial metrics primarily due to heavy leverage that would be increased by an additional $400 million under the LBO. Management has recently indicated that it will implement mechanisms to isolate or "ring fence" the credit quality of TEP from UniSource. Structural separation, designed to limit the exposure of TEP to its weaker parent, may be sufficient to preserve TEP's
