Fitch Rates Oncor Electric Delivery's $475MM 5.25% Secured Notes 'BBB'

NEW YORK--(BUSINESS WIRE)--Fitch has assigned a rating of 'BBB' to the $475 million 5.25% senior secured notes issued by Oncor Electric Delivery, LLC (Oncor). The new secured notes will mature on Sept. 30, 2040. The notes are secured by a first mortgage lien on Oncor's transmission and distribution assets and rank equally with other senior secured debt of Oncor. Proceeds from the notes are expected to be used to reduce revolving credit facility borrowings and for general corporate purposes.

Key rating factors are the stability of existing regulated utility cash flows, credit ratios commensurate with the rating, and effective ring-fencing from a highly leveraged parent company, Energy Future Holdings Corp. (EFH; Fitch IDR of 'CCC', with a Stable Outlook).

Oncor's ratings are supported by a healthy regulated transmission and distribution (T&D) utility business that has steady cash flow with rate-base growth opportunities related to transmission projects to connect West Texas wind power to load centers, the 2009 rate order, and advanced metering investments. Credit ratios are consistent with the investment-grade rating, with a funds from operations (FFO) coverage ratio of 3.9 times (x) for the trailing 12 months (TTM) ended June 30, 2010. Oncor bears no commodity price risk and has low business risk as a pure T&D utility with a relatively strong service territory economy.

While Fitch considers Oncor to be effectively ring-fenced from the rest of the EFH group, its credit market access or credit spreads could nonetheless become constrained by any deterioration in the financial condition of EFH and non-ring-fenced affiliates. Importantly, the Public Utilities Commission of Texas (PUCT) recognized Oncor's ring-fencing in the 2009 base-rate order by rejecting a proposed consolidated tax savings adjustment. Large capital spending plans are expected to constrain its dividends to EFH as Oncor is expected to maintain equity to capital within the 40% maximum PUCT-required level (excluding bank facility borrowings), and funds external needs with a balanced mix of debt and equity.

Liquidity is satisfactory. Oncor has a $2 billion revolving credit facility due 2013. There were borrowings of $948 million as of June 30, 2010. Bank facility borrowings are expected to be reduced with a portion of the proceeds from the new secured notes. Fitch expects Oncor to begin to pre-fund significant debt maturities in 2012 ($700 million) and 2013 ($650 million) through debt exchange efforts.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria:

'Credit Rating Guidelines for Regulated Utility Companies' (July 31, 2007);

'Issuer Default Ratings and Recovery Ratings in the Power and Gas Sector' (Nov. 7, 2005);

'U.S. Power and Gas Comparative Operating Risk (COR) Evaluation and Financial Guidelines' (Aug. 22, 2007);

'Corporate Rating Methodology' Nov. 24, 2009.

Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

U.S. Power and Gas Comparative Operating Risk (COR) Evaluation and Financial Guidelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=338030

Issuer Default Ratings and Recovery Ratings in the Power and Gas Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=254848

Credit Rating Guidelines for Regulated Utility Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=334652

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