Fitch Upgrades NV Energy & Subs on MEHC Merger Close; Outlook Stable

NEW YORK--()--Fitch Ratings has upgraded NV Energy, Inc.'s (NVE) Issuer Default Rating (IDR) to 'BBB-' from 'BB+' following the completion of the acquisition of NVE and its subsidiaries by MidAmerican Energy Holdings Company (MEHC; IDR 'BBB+'; Rating Outlook Stable).

At the same time, Fitch has upgraded the ratings for both Nevada Power Company d/b/a/ NV Energy (NPC) and Sierra Pacific Power Company's d/b/a/ NV Energy (SPPC) to 'BBB' from 'BBB-'.

Fitch has removed the ratings of NVE, NPC and SPPC from Rating Watch Positive where they were placed May 30, 2013, following the announcement of the merger agreement between NVE and MEHC.
The Rating Outlook for NVE, NPC and SPPC is Stable.

A complete list of rating actions follows at the end of this release.

Approximately $5 billion of debt is affected by the rating action.

KEY RATING DRIVERS
--Greater financial flexibility as a subsidiary of a financially robust ultimate corporate parent;
--A balanced regulatory environment in Nevada;
--Improving financial profile due to significant debt reduction, higher earnings and lower interest expense;
--Relatively low capex following completion of NVE's major generation build cycle.

The one-notch upgrade of NVE and its utility operating subsidiaries ratings and the Stable Outlook is supported by the increased financial flexibility and lower funding costs afforded NVE and its subsidiaries by association with a larger, financially strong parent company. The acquisition of NVE by MEHC augments an already improving stand-alone credit profile at NVE and its subsidiaries. MEHC is owned by Berkshire Hathaway Inc. (IDR 'AA-'; Outlook Stable).

On an acquisition-adjusted-basis, Fitch estimates NVE will be free cash flow positive during 2013 - 2015, due in large part to higher rates granted by the PUC to NPC effective Jan. 1, 2012 and manageable capex levels. Fitch estimates EBITDA-to-interest will improve from 3.9X in 2013 to 4.7X and debt-to-EBITDA from 4.0x to 3.5X. Fitch believes these credit metrics are supportive of NVE's 'BBB-'rating for a utility holding company with its business risk profile.

The ratings and Stable Outlook reflect strengthening consolidated credit metrics at NVE due to historic and anticipated debt reduction, a balanced regulatory environment in Nevada, slowly improving regional economic conditions and management's strategic focus on utility operations in Nevada.

Fitch does not expect NVE's strategic focus to change under MEHC ownership. The ratings also consider the balanced outcome in NPC's last general rate case (GRC) and positive effect on its credit metrics. The recent Nevada Public Utilities Commission (PUC) net $31 million rate reduction in SPPC's general rate case was somewhat greater than Fitch's expectations.

MEHC and NVE announced the completion of their proposed merger on Dec. 19, 2013, following receipt of regulatory approvals from the Federal Energy Regulatory Commission and the PUC. With completion of the proposed transaction, NVE becomes a wholly-owned subsidiary of MEHC and will remain the intermediate corporate parent of NPC and SPPC.

MEHC paid approximately $5.6 billion of cash for NVE's outstanding equity, resulting in a transaction enterprise value of $10 billion. On May 30, 2013, Fitch affirmed the ratings of MEHC with a Stable Outlook following the announcement of the then proposed acquisition.

Fitch recognizes that on a secular basis, the greater financial flexibility to retain earnings within the NVE corporate complex could result in meaningful debt reduction. Significant de-levering of NVE's balance sheet beyond stand-alone expectations could lead to future credit rating upgrades in the intermediate-to-longer term.

RATING SENSITIVITIES

An adverse change to the regulatory compact in Nevada could trigger future negative rating actions.

Greater than anticipated debt reduction and/or a better-than-expected economic recovery in Nevada could result in positive rating actions.

Fitch has taken the following rating actions:

NVE
--Long-term IDR upgraded to 'BBB-' from 'BB+';
--Senior unsecured debt upgraded to 'BBB-' from 'BB+'.

NPC
--Long-term IDR upgraded to 'BBB' from 'BBB-';
--Senior secured debt upgraded to 'A-' from 'BBB+';
--Short-term IDR affirmed at 'F3'.

SPPC
--Long-term IDR upgraded to 'BBB' from 'BBB-';
--Senior secured debt upgraded to 'A-' from 'BBB+';
--Short-term IDR affirmed at 'F3'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology: Including short-Term Ratings and Parent Subsidiary Linkage' Aug. 5, 2013;
--'Recovery Ratings and Notching Criteria for Utilities' Nov. 19, 2013;
--'Rating North American Utilities, Power, Gas, and Water Companies' May 16, 2011;
--'Short-Term Ratings Criteria for Non-Financial Corporates', Aug. 5, 2013.

Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Recovery Ratings and Notching Criteria for Utilities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085
Rating North American Utilities, Power, Gas, and Water Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129
Short-Term Ratings Criteria for Non-Financial Corporates
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714415

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=812882
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Contacts

Fitch Ratings
Primary Analyst:
Philip W. Smyth, CFA, +1-212-908-0531
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Daniel Neama, +1-212-908-0561
Associate Director
or
Tertiary Analyst:
Lindsay Minneman, +1-212-908-0592
Director
or
Committee Chairperson:
Glen Grabelsky, +1-212-908-0577
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
Philip W. Smyth, CFA, +1-212-908-0531
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Daniel Neama, +1-212-908-0561
Associate Director
or
Tertiary Analyst:
Lindsay Minneman, +1-212-908-0592
Director
or
Committee Chairperson:
Glen Grabelsky, +1-212-908-0577
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com