Fitch Establishes Ratings for Otter Tail Corp and Otter Tail Power

NEW YORK--(Business Wire)--
Fitch Ratings will establish credit ratings for Otter Tail Corporation (OTTR)
and its subsidiary Otter Tail Power (OTP) upon a corporate reorganization
expected to occur on July 1, 2009 in which the electric utility OTP will become
a subsidiary of a new parent holding company. Prior to the planned
reorganization, the utility is the parent company. The Issuer Default Rating
(IDR) of OTTR will be 'BBB-' and that of its subsidiary OTP 'BBB'. The expected
Rating Outlook for both companies is Stable. A full list of the rating actions
appears below.

The largest of OTTR's subsidiaries is OTP, a regulated electric utility that
serves in the three states of Minnesota, North and South Dakota. OTTR's business
portfolio also includes Varistar, a subsidiary that holds a diverse set of
highly cyclical industrial businesses operating in fragmented and competitive
markets; Varistar generally does not benefit from advantageous size and scale in
those markets. The holding company IDR of 'BBB-' considers the cash flow
variability of this unusual blend of businesses as well as the moderate debt
leverage of the utility and low debt leverage at the parent company.

To arrive at the ratings and Stable Rating Outlook for the new parent company
reflecting the consolidated group, Fitch considered the potential effects of an
adverse economic climate lingering through 2010 and into 2011 with material
effect on Varistar's diversified business portfolio. In stress cases, the low
debt leverage supporting the industrial/ non-utility business portfolio
mitigated the effects of the stress.

OTP's IDR of 'BBB' reflects the simple business profile of the electric utility
and supportive regulatory mechanisms in its three-state area of Minnesota, North
and South Dakota, including tracker mechanisms to recover some operating costs
from consumers. The ratings established for the utility are consistent with
OTP's projected credit ratios and consistent with those of peer utilities rated
by Fitch.

Operating cash flow of the utility business is susceptible to some lags in
recovery of higher costs of fuel and purchased power, as in 2008, and depends on
ongoing rate increases to recover capital investment in increased investment in
utility assets. Fitch expects that OTP's near-term operating income and credit
measures are likely to be reduced by low power price realization for sales of
excess power into the wholesale power market, at the same time that OTP is
accelerating capital expenditures for wind projects to take advantage of
available federal incentives for renewable energy projects. Fitch's ratings of
OTTR and OTP take into consideration moderate ring-fencing of the utility
subsidiary from its parent and other affiliates, a factor that reduces but does
not eliminate linkage between the ratings of OTTR and OTP.

Adequate near-term liquidity is provided under separate revolving credit
facilities for OTTR (available until Oct. 2010) and OTP (to July 2011). OTP and
OTTR will rely on external capital market financing in 2009 and 2010 to fund a
relatively high level of new investment in the utility and to refund $165
million of debt of OTP coming due in 2011. Fitch anticipates that management
will finance its long-term capital needs with a mix of debt and equity
financing.

OTTR had 2008 revenues of over $1.3 billion. The company's businesses are
classified into six segments: Electric Utility (includes the production,
transmission, distribution and sale of electric energy in MN, ND and SD under
the name Otter Tail Power Company.); Plastics (businesses producing polyvinyl
chloride (PVC) pipe.); Manufacturing (production of wind towers, contract
machining, metal parts stamping and fabrication, and production of waterfront
equipment, material and handling trays and horticultural containers.); Health
Services (sale of diagnostic medical equipment, patient monitoring equipment and
related supplies and accessories); Food Ingredient Processing (owns and operates
potato dehydration plants); and Other Business Operations (businesses in
residential, commercial and industrial electric contracting industries, fiber
optic and electric distribution systems, wastewater and HVAC systems
construction, transportation and energy services.)

The following ratings are established, with a Stable Outlook:

Otter Tail Corporation (OTTR)

--Long-term IDR 'BBB-';

--Short-term IDR 'F3';

--Senior Unsecured 'BBB-';

--Preferred Stock 'BB+'.

Otter Tail Power (OTP)

--Long-term IDR 'BBB';

--Short-term IDR 'F3';

--Senior Unsecured 'BBB+';

Pollution Control Revenue Bonds 'BBB+':

--Mercer County (ND) 4.85% Pollution Control Refunding Revenue Bonds due Sept.
1, 2022;

--Grant Count (SD)4.65% Pollution Control Refunding Revenue Bonds due Sept.1,
2017;

--Grant Count (SD) Variable Rate Pollution Control Refunding Revenue Bonds due
Dec. 1, 2012;

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Ellen Lapson, CFA, +1-212-908-0504
Glen Grabelsky, +1-212-908-0577
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

Copyright Business Wire 2009