Fitch Rates Ameren Illinois' CP Program 'F2'

NEW YORK--()--Fitch Ratings has assigned a 'F2' rating to Ameren Illinois' (AIC) new commercial paper (CP) program. On March 14, 2014, Fitch upgraded AIC's long-term Issuer Default Rating (IDR) to 'BBB' from 'BBB-'. The Rating Outlook is Stable.

AIC's ratings upgrade reflects:

--Increased regulatory predictability;

--Robust financial performance;

--Elevated but manageable capex;

--Ample access to liquidity.

AIC's ratings upgrade is supported by the implementation in May 2013 of new Illinois legislation (S.B.9) that provides increased regulatory predictability and results in a more supportive credit profile at AIC. The new legislation clarified certain formula rate plan (FRP)-related provisions that had been the subject of material disagreement in previous proceedings. The FRP, implemented in October 2011, recognizes forward-looking rate base additions and includes a true-up mechanism minimizing, albeit not eliminating, regulatory lag. Fitch had viewed the first two FRP rate decisions that had resulted in $53 million of total rate reduction as less than favorable, raising concerns that the FRP legislation had not led to an improved Illinois regulatory construct.

AIC's most recent electric rate decision in December 2013 resulted in a net rate reduction of $45 million, effective Jan. 1, 2014, which was in line with AIC's original rate reduction request. In December 2013, AIC also received a gas base rate increase of $32 million, effective Jan. 1, 2014, based on a 2014 test year, a 9.1% return on equity (ROE), and a 51.7% common equity ratio. New legislation implemented in July 2013 reduces regulatory lag on gas infrastructure investments via a rider mechanism and use of forward-looking test years. AIC's gas business represented approximately 37% of operating revenues for the year ended Dec. 31, 2013.

The ratings upgrade is also supported by AIC's sustained solid financial performance that results in credit metrics that are above Fitch's prior expectations. As a result, Fitch projects credit metrics to be more in line with Fitch's benchmark ratios for the 'BBB' rating category. Fitch forecasts the ratios of adjusted debt/EBITDAR, funds from operations (FFO)-lease adjusted leverage, and FFO fixed charge coverage, to average 3.1x, 3.4x, and 4.5x, respectively, over 2014-2016. Fitch's projections assume that AIC receives timely and adequate recovery of planned capital investments in the context of annual FRP proceedings. For the fiscal year ended Dec. 31, 2013, adjusted debt/EBITDAR, FFO-lease adjusted leverage, and FFO fixed charge coverage were 2.9x, 2.9x and 3.9x, respectively.

Capex is projected to total approximately $3.50 billion over 2014-2018. The elevated capital spending is primarily driven by the Illinois Energy Infrastructure Modernization Act (IEIMA), under which AIC plans on spending an incremental $640 million of capital investments over 10 years, including $265 million on distribution infrastructure upgrades and $375 million on smart-grid and smart meter related projects. The FRP legislation provides for recovery through annual filings.

AIC also plans on spending incremental amounts in its gas business. Fitch expects AIC to recover gas investments via an infrastructure rider. Projected capex also includes approximately $850 million of transmission investments planned over the next five years, which should enjoy credit supportive FERC regulatory treatment.

Fitch expects AIC to finance capex in a conservative manner, using a balanced mix of internally generated funds and long-term debt issuances.

Fitch considers liquidity to be strong. AIC has access to a total of $800 million of credit capacity under a $1.1 billion bank credit facility that expires in November 2017. AIC shares the credit facility with its parent AEE, which has a sub borrowing limit of $300 million. At Dec. 31, 2013, there were no borrowings outstanding under the facility. AIC had $1 million of cash and cash equivalents. There are no long-term debt maturities until $129 million due in 2016 and $250 million due in 2017.

RATING SENSITIVITIES

Factors that could lead to a positive rating action: Adjusted debt/EBITDAR below 3.5x and FFO lease-adjusted leverage below 4x on a sustained basis could lead to positive rating actions.

Factors that could lead to a negative rating action: Inability to timely recover via FRP and FERC proceedings a sizeable $2.27 billion of capex over the forecast period could pressure the ratings.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Rating U.S Utilities, Power and Gas Companies' (March 11, 2014);

--'Recovery Ratings and Notching Criteria for Utilities' (Nov. 19, 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

Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826139

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Contacts

Fitch Ratings
Primary Analyst:
Philippe Beard, +1-212-908-0242
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Robert Hornick, +1-212-908-0523
Senior Director
or
Committee Chairperson:
Shalini Mahajan, +1-212-908-0351
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Philippe Beard, +1-212-908-0242
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Robert Hornick, +1-212-908-0523
Senior Director
or
Committee Chairperson:
Shalini Mahajan, +1-212-908-0351
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com