TEXT-Fitch rates Duke Energy's senior notes 'BBB+'

Mon Aug 13, 2012 5:39pm EDT

Aug 13 - Fitch Ratings has assigned a 'BBB+' rating to Duke Energy Corp.'s
 (DUK) new $1.2 billion dual tranche debt offering comprised of $700
million, 1.625% unsecured notes due Aug. 15, 2017 and $500 million, 3.05% senior
notes due Aug. 15, 2022. The Rating Outlook is Stable. The notes rank equally
with all existing and future unsecured debt obligations. A portion of the net
proceeds will be used to repay at maturity Duke Energy Ohio Inc.'s $500 million,
5.7% debentures due Sept. 15, 2012 and the remainder for general corporate
purposes.

Key Rating Drivers
Utility Operations: The ratings are supported by the credit strength and cash
flow diversity of DUK's six regulated utility subsidiaries operating in six
states. Utility operations are expected to provide approximately 85% of
consolidated earnings and cash flow. DUK's two largest and financially sound
utility subsidiaries, Duke Energy Carolinas and Progress Energy Carolinas (Both
companies IDRs rated 'A-' by Fitch), will account for approximately 55% - 60% of
utility earnings.

Progress Energy Merger: The ratings incorporate DUK's increased scale and
enhanced financial flexibility following the merger with Progress Energy Corp.
(PGN). Longer term, economies of scale and the geographic proximity of the
service territories should create synergy opportunities that strengthen credit
quality measures. The CEO transition controversy did not affect the ratings.

Credit Metrics: In 2013, the first full year of operation for the combined
entity Fitch estimates consolidated EBITDA/interest, FFO/interest and FFO/debt
of approximately 4.75 times (x), 5.0x, and 20% respectively, which is consistent
with Fitch's target ratios for 'BBB+' issuers and DUK's peer group of utility
parent companies. Debt/EBITDA, however, will be somewhat weak for the rating
category with 2013 Debt/EBITDA projected by Fitch to be about 4.25x, trending
down to about 4.0x over the next two years.

Construction Expenditures: Consolidated capital expenditures for the merged
entity trend downward through 2013, as several electric generation modernization
projects enter service in 2012 and early 2013. Expenditures then begin to
increase in 2014 due, in part, to rising environmental expenditures, potential
electric generation additions and discretionary expenditures.

Liquidity: DUK has sufficient liquidity to meet its operational needs and debt
refinancing requirements, but will require continued capital market access. In
Nov. 2011, the company entered into a new $6 billion, five year master credit
facility, with $4 billion available at closing and the remaining $2 billion
became effective July 2, 2012, following the closing of the merger with PGN. As
of June 30, 2012 (pre-merger), available borrowing capacity under the credit
facility was $2.7 billion and available cash $1.5 billion.

Rating Concerns
Consolidated Leverage: The acquisition of the more levered PGN increases the
proportion of debt at the parent level (DUK plus PGN). Pre-merger, Duke had
approximately 20% of its $23 billion consolidated debt at the parent level,
compared to about 33% for PGN. Post-merger parent debt (DUK plus PGN) is
expected to approximate 25% - 27% of total debt.

Achieving synergies: DUK is at risk for system fuel savings included as part of
the merger settlement agreement with the North Carolina Public Service
Commission. The companies agreed to guarantee $650 million in system fuel
savings for Carolina retail customers over the next five years (plus an
additional 18 months if coal consumption at certain plants is less than
originally forecast due to low gas prices).

Environmental Exposure: Pre-merger, DUK (excluding PGN) derived approximately
60% of its electric generation from coal-fired facilities and expects
environmental spending of $2.1 billion over the five-year period 2012-2016.
Subsidiaries Duke Energy Indiana, LLC and Duke Energy Kentucky, LLC are
authorized to recover environmental spending through tracker mechanisms.

What Could Lead to Consideration of a Negative Rating Action:
--Adverse regulatory outcomes;
--An increase in the percent of expected parent level debt.

What Would Lead to Consideration of a Positive Rating Action:
--Not likely at the present rating level.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011)
--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012);
--'Rating North American Utilities, Power, Gas and Water Companies' (May 16,
2011).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Rating North American Utilities, Power, Gas, and Water Companies
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