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.