Fitch rates Dominion Resources' $1,050 mm issuance of senior notes 'bbb+'; outlook stable
Sept 11 (Reuters) - (The following statement was released by the rating agency) NEW YORK, September 11 (Fitch) Fitch Ratings has assigned a 'BBB+' rating to the following Dominion Resources, Inc.'s (Dominion) senior notes: --$350 million issuance of 1.40% senior notes, Series A due Sept. 15, 2017; --$350 million issuance of 2.75% senior notes, Series B due Sept. 15, 2022; --$350 million issuance of 4.05% senior notes, Series C due Sept. 15, 2042. Proceeds will be used to repay outstanding short-term borrowings and to refinance the maturity of $520 million 2002 Series C 5.70% senior notes due on Sept. 17, 2012. The notes will rank on parity in right of payment with all existing and future senior unsecured debt. The Rating Outlook for Dominion is Stable. Current ratings of Dominion 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. Financial metrics are consistent with Fitch guidelines for the rating and risk profile, with June 30, 2012 EBITDA to Interest and funds from operations (FFO) to debt, as calculated by Fitch, at 4.0x and 16.5%, respectively. Fitch forecasts financial metrics to range near current levels over the next few years, and considers effective cost management and timely regulatory cost recovery as key to managing a stable financial profile during this capital intensive period. Regulated Operations: Dominion's rating is supported by the significant contributions of its low-risk regulated business operations which deliver predictable cash flow metrics. Fitch views the announcement by the company on Sept. 6, 2012 that it is pursuing a sale of three coal-fired merchant generating plants, together with the previously announced plan to sell of the Kewaunee nuclear plant, as consistent with a management strategy focused on regulated operations and supportive of credit quality. If successful, the plan to sell the under-performing assets would reduce commodity price sensitivity and business risk and moderately lower capital requirements. Management estimates the contribution of regulated businesses would increase to approximately 80% - 90% of consolidated earnings from 76%. Balanced Regulation: Dominion operates under four state regulatory jurisdictions, plus the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. Fitch views the regulatory environment as balanced, and continues to expect supportive treatment for timely recovery of fuel and non-fuel costs and considers the inclusion of riders and incentive ROEs in Virginia as supportive of credit quality, particularly in consideration of sizeable investments in new utility generation. Less supportive regulatory treatment could adversely affect the credit profile. Aggressive Capital Investment Plan: Consolidated capital expenditures will be elevated over the next several years as Dominion executes a capital plan focused on investments in new utility generation and natural gas gathering and processing infrastructure assets. Successful execution of the capital plan is material to maintaining rating stability. High Level of Parent Debt: A concern for Fitch is the sizeable amount of parent company debt. Dominion finances all operations, excluding Virginia Electric Power Co. (IDR 'BBB+'; Stable Outlook) at the parent company level. A disproportionate growth in unregulated higher risk assets without a reduction in debt at the parent would put downside pressure on Dominion's ratings. Capital Funding: The ratings assume a combination of debt and equity issuance to fund internal cash flow deficits during this multi-year period of elevated capital spending levels. Proceeds from the successful sale of the before-mentioned merchant assets would be first used to reduce planned equity offerings and future debt financings. However, the cash inflow provides additional financial flexibility. Sufficient Liquidity: The consolidated liquidity position for Dominion remains sufficient relative to funding needs at $2.1 billion, including $162 million of cash on hand, as of June 30, 2012. There are two separate revolvers for total consolidated borrowing capacity of $3.5 billion, expiring September 2016. Dominion's consolidated debt maturities are manageable, and Fitch considers the re-financing risk as low. Positive Rating Action Trigger: --Execution and funding of a sizeable utility capital investment plan limits positive rating action at this time. Negative Rating Action Triggers: --A material change in Dominion's business profile towards investments in higher risk, commodity sensitive operations; --A material increase in parent level debt due to the financing of higher business risk investments; --Less supportive regulatory treatment.
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