The finance Committee of the Southside Electric Power Company was scheduled to review its major financial policies in September 2007. At 2:00pm on August 25, 2007, Larry Longshore, treasurer of the company and finance committee member, leaned back in his share and stared off into space.His major concern was the company's debt position which has increased in the last few uears to a level that placed its triple a bonds rating in jeopardy. Southside Electric Power had carefully maintained the highest bond rating for uears and Mr Longshore did not want to adopt a financing plan that might endanger its triple A rating. However, Stanley Worsham, Controller of the company and chairperson of the finance committee, had argued for uears that it was too costly to maintain the highest bond rating. Furthermore, he argued that a depressed stock price made equity financing undesirable.

Southside Electric Power provides electric service to a large region of the southeastern United States. In the early 1980's, the company embarked on the most ambitious nuclear-power plant construction program in the nation's history.It was spurred by the Southeastern Power Administration, a federal agency that was concerned about future supply of electricity. IN 2006, the company spent $250 million on new construction and $85 million to modernize existing plants.The construction program was expected to grow somewhat above the 1998 to 2006 average above 8.2% for the next four years.Because the demand for electric power had grown in recent years at a rate almost twice that of the overall economy, Southside Electric Power, like the rest of the electric utilitiy industry, faced a dramatic acceleration in the need for capital to finance growth. Mr. Longshore outlined the reasons for a sudden surge in capital expenditures facing the industry. (1) the rate of growth in construction of "all electric" homes was accelerating because of an unexpectedly sharp increase in gas prices for the last few years.Second, the electric utility industry was becoming more capital intensive because of the skyrocketing construction costs of nuclear power plants.Third, the failure of the nuclear plant at Three Mile Island had created pressure for additional spending to increase system reliability at redundant facilities.Because Southside Electric Power had always recognized the importance of dividends to its shareholders, it had never missed a dividend payment since it was founded in 1937. Moreover, fiscal 2006 was the eleventh consecutive year in which cash dividends had been increased. This policy resulted in a payout ratio in the range of 45 to 50%.

Question:

What are the letter ratings assigned by Moody's and Standard & Poor's to indicate the quality of the bonds?

The Company's debt policy was designed to maintain the highest credit rating and to maximize access to all major sources of new capital. Until the mid- 1990 s, its debt ratio objective had been between 30 and 40% percent. Such equity financing was possible because the company's stock price had been fairly favorable and its earning per share had increased each year since 1937. significantly in the near future. At the end of 2006 , the company was very close to the boarderline for a double-1 bond rating. Lower-rated bonds pay more in interest charges because they have greater long-term financial risk. In addition, lower-rated companies would find it difficult to obtain money at times of sharply intensifying financial strain. The Company's debt policy was designed to maintain the highest credit rating and to maximize access to all major sources of new capital. Until the mid- 1990 s, its debt ratio objective had been between 30 and 40% percent. Such equity financing was possible because the company's stock price had been fairly favorable and its earning per share had increased each year since 1937. significantly in the near future. At the end of 2006 , the company was very close to the boarderline for a double-1 bond rating. Lower-rated bonds pay more in interest charges because they have greater long-term financial risk. In addition, lower-rated companies would find it difficult to obtain money at times of sharply intensifying financial strain