TEXT-Fitch rates NiSource Finance's $750MM notes 'BBB-'; outlook stable
June 12 - Fitch Ratings has assigned 'BBB-' ratings to NiSource Finance Corp.'s (NiSource Finance) $250 million 3.85% notes due 2023 and $500 million 5.25% notes due 2043. NiSource Finance is a wholly-owned special purpose finance subsidiary of NiSource Inc. (NI; rated 'BBB-' with a Stable Outlook). The notes are unconditionally guaranteed by NI. Net proceeds from the sale of the notes will be used to repay short-term borrowings and for general corporate purposes
Key Rating Drivers: NI's rating and Stable Outlook reflect the low business risk and consistent operating performance generated by its geographically diverse mix of regulated operations. Other considerations include increasing revenues from improved industrial electric usage at NIPSCO, anticipated favorable rate settlements across all three operating segments, and the future financial benefits from a $400 million forward equity sale that NI expects to draw on in the second half of 2012.
Forward Expectations: NI's financial profile is expected to remain consistent with its current rating though its current multi-year infrastructure-build cycle. Fitch projects NI's 2012 debt to EBITDA to approximate 5.0 times (x). Typically NI's leverage peaks at the end of the year as a result of seasonal gas storage purchases at its gas utilities and drops during the following months as gas costs are recovered. On Dec. 27, 2011, new electric rates became effective for NI affiliate Northern Indiana Public Service Co. (NIPSCO) under its 2010 electric base rate case. Leverage ratios should modestly strengthen over 2012 benefiting from new electric, gas transmission and gas utility rates, expected equity sales, and the timely financial recovery under tracking mechanisms of a significant portion of NI's capital expenditures.
Liquidity: NI's liquidity is expected to be adequate. NiSource Finance has recently amended its $1.5 billion revolving credit facility that matures on May 15, 2017. The company issues 'F3' rated commercial paper under a $500 commercial paper program that is backstopped by the revolver. The revolver has one financial covenant which sets a maximum NI consolidated debt-to-cap ratio of 70%. The revolver also includes limitations on liens and restrictions on asset sales. At March 31, 2012, NI had approximately $593 million in net available liquidity under the revolver. In April 2012, NiSource Finance issued a $250 million three-year term loan with proceeds used to reduce short-term debt. NI's liquidity position in 2012 should benefit from the forward equity sale and bonus depreciation. NI affiliates also had a total of $376.6 million of accounts receivable securitization facility borrowings outstanding at March 31, 2012.
Catalysts for Future Rating Actions: Possible catalysts for negative rating actions include unfavorable regulatory decisions, higher than anticipated leverage on a sustained basis, and weakened liquidity. Possible catalysts for positive rating actions include long term improvement in credit metrics and reduced regulatory risk.