Fitch Rates Sempra Energy's Senior Notes 'BBB+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB+' rating to Sempra Energy's (SRE) $500 million issue of 2.875% senior notes due Oct. 1, 2022. The Rating Outlook is Stable. Net proceeds of the offering will be used for general corporate purposes including the repayment of commercial paper.

KEY RATING DRIVERS

Predictable Earnings:

The ratings of SRE primarily reflect its financial strength underpinned by its regulated utilities in California and by its contracted energy infrastructure investments. The utilities are expected to continue to benefit from constructive regulation in California that includes various mechanisms providing for timely recovery of costs. At the same time, it is expected that future investments in the non-regulated businesses will be financed in a manner consistent with the current capital structure and supported by long-term contracts, particularly for investments in renewable power projects.

Strong Financial Metrics:

SRE's interest coverage measures are strong with EBITDA-to-interest projected to be approximately 5x and funds flow from operations (FFO)-to-interest expected to range from 4.8x to 5.2x over the next several years. Leverage ratios are modestly affected by the sizeable capital investments at the utilities and the renewable business. Debt-to-EBITDA is expected to be in the low 3x range for the forecast period while FFO-to-debt should stabilize in the low 20% range for the same period.

Large CapEx Program:

Sempra's California utilities, San Diego Gas and Electric and Southern California Gas Company face large infrastructure and system safety investments through 2016 estimated at $5.8 billion and $5 billion, respectively. Concerns related to these anticipated sizeable capital expenditures and those related to potential incremental pipeline safety investments are partially mitigated by regulatory pre-approval of capital spending plans, single-issue rate proceedings, and forward-looking test years.

WHAT COULD TRIGGER A RATING ACTION

Negative

--Unexpected regulatory outcomes that prevent timely recovery of costs or adequate return on capital;

--Investments in non-regulated assets that alter and lead to a higher business risk profile.

Positive

--Unlikely due to sizeable capital spending program.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);

--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012);

--'Rating North American Utilities, Power, Gas and Water Companies' (May 16, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677735

Rating North American Utilities, Power, Gas, and Water Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129

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