TEXT-Fitch: Dominion Resources divestiture plan supportive of credit quality

Fri Sep 7, 2012 10:23am EDT

Sept 7 - Fitch Ratings considers Dominion Resources, Inc.'s (DRI)
announcement that it is pursuing a sale of three coal-fired merchant generating
plants to be supportive of credit quality, but not likely to affect current
ratings ('BBB+' Issuer Default Rating). If successful, the plan to sell the
under-performing assets would reduce commodity price sensitivity and business
risk and moderately lower capital requirements. A sale should also reduce
liquidity and working capital needs. Previously, DRI announced it is seeking a
sale of the Kewaunee nuclear plant.

For fixed income investors, the benefits are partly offset by a planned rise in
the dividend payout ratio to 65% - 70% of operating earnings from 60% - 65%.
Moreover, net proceeds from the asset sale will be used first to replace planned
equity offerings with the balance to reduce future debt financings. However, the
cash inflow provides additional financial flexibility.

DRI plans to sell the Brayton Point, Kincaid and Elwood coal-fired generating
stations. The three merchant generating plants aggregate approximately 3,400 MW.
After the sale, merchant generating capacity would be reduced to approximately
3,600 MW (excluding wind) and the management estimates the contribution of
regulated businesses would increase to approximately 80% - 90% of consolidated
earnings from 76%.

The remaining merchant assets are well positioned and produce positive cash
flow. The assets include the low cost Millstone nuclear plant and the Fairless
natural gas facility, which is located in a constrained zone in PJM. The
Manchester plant provides support to the Millstone plant.

Current ratings reflect the strong cash flows from a large diverse asset base,
including a significant contribution from regulated businesses, an aggressive
capital investment plan and a high level of parent debt.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', (Aug. 8, 2012);
--'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 12,
2011).

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