TEXT-Fitch rates PPL Capital Funding's senior notes 'BBB'
Oct 15 - Fitch Ratings has assigned a 'BBB' rating to the proposed PPL Capital Funding, Inc.'s (PPL Capital Funding) new $400 million issue of 3.50% senior notes due Dec. 1, 2022. The Rating Outlook is Stable. PPL Capital Funding's ratings are based on an unconditional guarantee by its parent PPL Corporation (PPL). Key Rating Drivers: Transformative Utility Acquisitions PPL's ratings reflect its rapid transformation from a company heavily reliant on commodity sensitive businesses to one that is highly regulated with substantially less business risk. Driven by the acquisitions of Central Networks in April 2011 and LG&E and KU Energy, LLC in November 2010, regulated operations are expected to provide over 70% of consolidated EBITDA. By comparison, regulated operations accounted for approximately 30% of EBITDA prior to the acquisitions. Reasonably Balanced Financing Approach Both acquisitions were funded with a mix of common stock, hybrid securities, and debt in a manner that maintained PPL's consolidated capital structure. Approximately 50% of the permanent acquisition financing was funded by common stock and convertible equity units, which result in a ratio of debt to capitalization of 56.3% as of June 30, 2012, in line with PPL's 'BBB'-rated peers. Large Capital Spending Program PPL is investing heavily in its regulated businesses and expects to grow the regulated rate base by approximately 8% annually over the next five years. The investments will require ongoing rate increases in both Kentucky and Pennsylvania, and equity support from PPL. Expenditures in Kentucky are primarily to install environmental upgrades to comply with new Environmental Protection Agency (EPA) standards. In Pennsylvania, the new investments are largely to replace aging infrastructure and for transmission upgrades. Constructive Regulatory Mechanisms The two Kentucky utilities operate with an environmental cost recovery (ECR) mechanism that permits approved environmental costs to be recovered in rates two months after incurred. The ECR mechanism is particularly important given the two utilities' reliance on coal-fired electric generation and the substantial investment that will be required to meet the EPA's newest regulations. The ECR provides for recovery of and a return on environment investments, and substantially mitigates construction risk. For Pennsylvania, Fitch views positively the new alternative rate making legislation enacted in February 2012. The new bill allows utilities to utilize a fully projected future test year and extends the distribution system improvement charge to electric and natural gas distribution companies, reducing regulatory lag. Credit Metrics Expected to Improve The ratings reflect Fitch's expectation that the initial rise in leverage from funding the acquisitions will decline over the next few years. The expected improvement recognizes a full year of earnings from the two acquisitions, including synergy savings at the newly acquired UK electricity distribution businesses. As of Dec. 31, 2011 and June 30, 2012, PPL produced ratio of debt/EBITDA of 4.0x and 3.94x respectively. Fitch expects this leverage measure to remain approximately 4.0x. What Could Trigger A Rating Action: Negative --Earnings and cash flow contribution of PPL's wholesale power business is expected to remain under pressure in the foreseeable future, driven primarily by lower energy and capacity prices and higher fuel costs; --Unexpected regulatory outcomes that prevent timely recovery of costs or adequate return on capital. Positive --Unlikely due to sizeable capital spending program. 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. 8, 2012); --'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012); --'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 Recovery Ratings and Notching Criteria for Utilities Rating North American Utilities, Power, Gas, and Water Companies
- Protesters fell Lenin statue, tell Ukraine's president 'you're next'
- Four dead in apparent Connecticut murder-suicide
- South Korea expands air defense zone to partially overlap China's |
- Singer Susan Boyle reveals she has Asperger's syndrome: paper
- Dynasty's Congress party punished in Indian state elections