NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB+' rating to Xcel Energy Inc.'s (Xcel) issuances of senior notes due March 15, 2022 and Dec. 1, 2026. The notes are unsecured and rank pari passu with Xcel's other senior unsecured notes.
Xcel's 'BBB+' Long-Term Issuer Default Rating has a Stable Rating Outlook.
Net proceeds will be used to repay short-term debt borrowings ($366 million consolidated as of Sept. 30, 2016) and to fund the redemption on Dec. 19, 2016 of nearly $254 million of Xcel's 5.613% series B senior unsecured notes due April 2017. The balance will be used for other general corporate purposes.
KEY RATING DRIVERS
Strength of Regulated Utilities
Xcel's ratings largely reflect the relatively stable earnings and operating cash flow of the company's four regulated utility subsidiaries: Northern States Power Company-Minnesota (NSP-Minnesota, 'A-'/Outlook Stable), Northern States Power Company-Wisconsin (NSP-Wisconsin, 'A-'/Outlook Stable), Public Service Company of Colorado (PSCo, 'A-'/Outlook Stable) and Southwestern Public Service Company (SPS, 'BBB'/Outlook Stable). Xcel's strategy remains focused on its regulated utility businesses and obtaining timely recovery of their capital investments.
Mostly Constructive Regulatory Environment
Xcel benefits from exposure to regulatory environments that have been mostly constructive. PSCo and NSP-Wisconsin have received constructive treatment in their recent rate cases and are allowed the use of riders that provide timely recovery of capital investments. NSP-Minnesota has received relatively balanced regulatory treatment and is able to file for multiyear rate plans. SPS, however, operates in a challenging regulatory environment in New Mexico and Texas.
Large Capex Plan
Consolidated capex was recently increased and will remain elevated over the forecast period. Capex is projected to total approximately $18.4 billion over 2017-2021. Management expects more than 70% of consolidated capex to be allocated to NSP-Minnesota and PSCo. Electric distribution, electric transmission and renewables are expected to represent 24%, 21% and 19%, respectively, of total capex.
The utilities benefit from nonfuel rate riders that facilitate timely recovery of capital investment costs and support utility credit quality. Fitch anticipates Xcel will support the sizeable capital spending levels across the utility subsidiaries through equity infusions. In turn, Fitch expects Xcel to meet group funding needs through a balanced mix of external debt and equity financing.
Supportive Financial Metrics
Fitch forecasts credit metrics to remain supportive of credit quality, with funds flow from operations (FFO) fixed-charge coverage averaging 5.4x-5.9x, adjusted FFO leverage averaging 4.1x-4.6x and adjusted debt/EBITDAR averaging 4.2x-4.5x through 2019. FFO metrics are bolstered by tax benefits stemming from bonus depreciation and the utilization of net operating losses.
Standard Notching
There is a moderate-to-strong linkage between the Long-Term IDRs of Xcel and each of its subsidiaries. The linkages originate primarily from strategic drivers. Each subsidiary is important to Xcel, and the parent financially supports its subsidiaries when needed via equity infusions and loans to the intercompany money pool. Fitch's maximum allowed differential between the Long-Term IDRs of Xcel and each of its subsidiaries would be two notches.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Xcel include:
--Electric sales growth averaging 1.0%-1.5% per year for 2016-2019;
--O&M expense growing at approximately 2% per year for 2016-2019;
--Consolidated capex of $18.4 billion over 2017-2021;
--Rate case outcomes consistent with historical rate orders.
RATING SENSITIVITIES
Positive Rating Action: The relatively large multiyear capital investment plan at the utilities limits the prospects for a positive rating action in the near term. However, a positive rating action could occur if Fitch were to expect adjusted debt/EBITDAR to improve to less than 4x on a sustainable basis.
Negative Rating Action: Developments that may lead to a negative rating action include a material deterioration of the overall regulatory environment that results in an inability to adequately recover large capital investments, adjusted debt/EBITDAR weakening to 4.6x on a sustainable basis or a reduction in the level of parent support Xcel provides to its utilities.
LIQUIDITY
Liquidity is adequate for Xcel and each of its subsidiaries.
Xcel and its utility subsidiaries primarily meet their short-term liquidity needs through the issuance of commercial paper (CP) under an aggregate $2.75 billion revolving credit facility that expires in June 2021. Xcel and its utility subsidiaries had $366 million of CP issued and $19 million of letters of credit drawn at Sept. 30, 2016, leaving an aggregate of $2.365 billion of availability under this five-year unsecured facility.
Liquidity is also available to NSP-Minnesota, PSCo and SPS through participation in a money pool. Xcel may make investments in the utility subsidiaries at market-based interest rates, but the utilities are not permitted to lend to Xcel under the money pool arrangement. At Sept. 30, 2016, NSP-Minnesota had lent $51 million into the money pool, and PSCo had borrowed $51 million.
Xcel and its utility subsidiaries require modest cash on hand; Xcel had an aggregate of $353 million unrestricted as of Sept. 30, 2016.
Xcel's parent company-level long-term debt maturities are manageable over the next five years. Xcel has $250 million of 1.2% senior unsecured notes due in June 2017, $550 million of 4.7% senior unsecured notes due in May 2020 and $400 million of 2.4% senior unsecured notes due in March 2021. Xcel's utility subsidiaries also have manageable long-term debt maturity schedules.
Fitch expects Xcel and its utility subsidiaries to maintain ready access to the capital markets to fund capex and refinance maturing long-term debt.
Date of Relevant Rating Committee: April 20, 2016
Disclosure: There were no financial statement adjustments made that were material to the rating rationale outlined above.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015)
https://www.fitchratings.com/site/re/869362
Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (pub. 29 Feb 2016)
https://www.fitchratings.com/site/re/878264
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015416
Endorsement Policy
https://www.fitchratings.com/regulatory
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