Fitch Rates Ameren Illinois' $250MM Senior Secured Notes 'A-'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'A-' rating to Ameren Illinois' (AIC) new 4.30% $250 million issuance of senior secured notes due July 1, 2044. The Rating Outlook is Stable. The new notes will rank pari passu with AIC's existing senior secured obligations. Net proceeds will be used to repay short-term debt. On March 14, 2014, Fitch upgraded AIC's long-term Issuer Default Rating (IDR) to 'BBB' from 'BBB-'.
AIC's ratings upgrade reflects:
--Increased regulatory predictability
--Robust financial performance
--Elevated but manageable capex
--Ample access to liquidity
KEY RATING DRIVERS
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.
In April 2014, AIC filed for a $206 million electric net base rate increase based on a 9.25% ROE and a 51% common equity ratio. A rate decision is expected in December 2014 with new rates to be effective in January 2015. In December 2013, AIC received a gas base rate increase of $32 million, effective Jan. 1, 2014, based on a 2014 test year, a 9.08% 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 ratings are supported by the company's sustained solid financial performance that is consistent with the current ratings. Fitch forecasts the ratios of Adjusted Debt/EBITDAR, 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.
AIC plans on spending a total of approximately $3.50 billion in its electric and gas business 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 in its electric business 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 Nov. 2017. AIC shares the credit facility with its parent AEE, which has a sub borrowing limit of $300 million. At March 31, 2014, there were no borrowings outstanding under the facility. Money pool borrowings amounted to $242 million at March 31, 2014. 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.
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: Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);
--'Rating U.S. Utilities, Power and Gas Companies' (March 11, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)