NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to Public Service Company of Colorado's (PSCo) new $500 million issuance of first mortgage bonds consisting of $250 million 2.50% series no. 25 due March 15, 2023 and $250 million 3.95% series no. 26 due March 15, 2043. The new first mortgage bonds will rank equally with PSCo's existing senior secured obligations.
Net proceeds will be used to repay short-term debt borrowings and for general corporate purposes, including the funding of PSCo's capital expenditure program.
KEY RATING DRIVERS
Positive Outlook
The Positive Outlook on PSCo is driven by a strong financial profile. Fitch forecasts credit protection measures to remain strong relative to guidelines for the 'BBB+' rating category with EBITDA-to-interest near 7x and FFO-to-debt ranging between 21% and 26% through 2014. Fitch would look to the utility to sustain credit protection measures consistent with current levels, as well as the timely execution of the company's sizeable capital investment plan, in order to take positive rating action.
Further supporting the Positive Outlook is a balanced regulatory situation in Colorado. While PSCo operates within a single-state regulatory jurisdiction, the implementation of a balanced multi-year rate plan in 2012 mitigates concern related to regulatory diversification and establishes near-term regulatory predictability.
PSCo filed a multi-year rate request in Dec. 2012 with the Colorado Public Utilities Commission (CPUC) to increase retail natural gas rates by $48.5 million in 2013, with subsequent step increases of $9.9 million in 2014 and $12.1 million in 2015. PSCo also requested a steam rate increase of $1.6 million in 2013, with subsequent step increases of $0.9 million in 2014 and $2.3 million in 2015. The requests are based on a 10.5% return on equity and a 56% common equity ratio. Fitch expects a balanced rate order by the CPUC. New rates are to be effective in the third quarter of 2013.
Sizeable Capital Investment Plan
PSCo plans to invest $4.56 billion through 2017, including $1.0 billion in environmental-related investments to address Clean Air Clean Jobs Act requirements. Transmission and distribution projects are the other spending drivers. Fitch expects capital funding to be a balance of cash on hand, equity infusions from parent company Xcel Energy, Inc. [Issuer Default Rating (IDR) 'BBB+'; Stable Outlook], and debt capital markets financings.
Adequate Liquidity
Fitch considers PSCo to have adequate liquidity to meet its working capital and other short-term funding needs. At Dec. 31, 2012, PSCo had $158 million of borrowings, including $154 million of commercial paper and $4 million of letters of credit, outstanding under its five-year $700 million bank credit facility. PSCo had $5.15 million of cash on hand at Dec. 31, 2012. The credit facility includes a financial covenant that the company's debt to total capitalization ratio be no greater than 65%. PSCo was in compliance as of Dec. 31, 2012.
PSCo's debt maturities are manageable with $256 million due in 2013, $282 million due in 2014, and $16 million due over 2015 and 2016. Fitch expects financing activity over the next few years to be driven by capital investment funding needs.
RATING SENSITIVITIES
Sustained credit metrics at levels currently forecasted by Fitch would likely lead to a one-notch upgrade.
Inability to successfully execute and adequately recover PSCo's sizeable capital investment plan could have a negative effect on ratings.
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);
--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012);
--'Rating North American Utilities, Power, Gas, and Water Companies' (May 16, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Recovery Ratings and Notching Criteria for Utilities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693750
Rating North American Utilities, Power, Gas, and Water Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552
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