UniSource Energy Announces New Credit Agreements; TEP Receives Debt Rating Upgrades from Moody's

TUCSON, Ariz., Apr 17, 2005 -- BUSINESS WIRE

UniSource Energy Corporation (NYSE:UNS) entered into a new $105 million credit agreement on April 15, 2005. The agreement, which expires April 15, 2010, includes a $90 million term loan facility and a $15 million revolving credit facility.

Moody's Investors Service assigned a rating of Ba2 to this UniSource Energy credit facility on April 12, 2005. Moody's also upgraded its rating of the secured debt of UniSource Energy's principal subsidiary, Tucson Electric Power Company (TEP), by two levels to Baa3, which is considered investment grade. Moody's boosted its rating of TEP's unsecured debt to Ba1. This is Moody's first upgrade to TEP's credit rating since 1999.

Moody's indicated that its rating actions reflect, among other things, the improvement in financial performance, which is due in part to recent debt reductions and expectations that financial results will continue to improve over the next several years.

UniSource Energy expects to borrow the entire $90 million available under the term loan facility by June 30, 2005. UniSource Energy will use the loan proceeds to make a capital contribution to TEP. It is anticipated that this contribution, together with the proceeds TEP received from a $95 million inter-company note repayment in March 2005 and any additional capital contributions to TEP from the proceeds of UniSource Energy's issuance of convertible senior notes earlier this year, will be used by TEP to retire or repurchase up to $225 million of its outstanding debt obligations.

UniSource Energy expects that borrowings will be made from time to time under the revolving credit facility for working capital purposes.

In addition, UNS Electric, Inc. (UNS Electric) and UNS Gas, Inc. (UNS Gas), the two operating subsidiaries of UES, entered into a $40 million revolving credit agreement, which expires on April 15, 2008.

UNS Electric and UNS Gas will be severally liable for borrowings under the new facility, with UES guaranteeing the obligations of both. The maximum borrowings outstanding at any one time for a borrower may not exceed $30 million. UNS Gas and UNS Electric expect to draw upon the new facility from time to time primarily for seasonal working capital purposes.

Union Bank of California acted as lead arranger for these financings.

UniSource Energy's primary subsidiaries include TEP, which serves more than 370,000 customers in southern Arizona; UES, a provider of natural gas and electric service for more than 218,000 customers in northern and southern Arizona; and Millennium Energy Holdings, parent company of UniSource Energy's unregulated energy businesses. For more information about UniSource Energy and its subsidiaries, visit www.UniSourceEnergy.com .

SOURCE: UniSource Energy Corporation

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