TEXT-Fitch rates Alabama Power senior notes 'A+'
Nov 29 - Fitch Ratings has assigned an 'A+' rating to Alabama Power Company's (Alabama Power) issuance of $350 million series 2012C 3.850% senior notes due Dec. 1, 2042. The Rating Outlook is Stable. The notes are senior, unsecured obligations of Alabama Power and will rank equally with all other unsecured and unsubordinated obligations of the company and junior to all secured indebtedness, which stood at approximately $153 million as of Sept. 30, 2012. The net proceeds from the offering along with other funds at Alabama Power will be used for redeeming $500 million series 2007D 4.85% senior notes that mature on Dec. 15, 2012. The ratings and Stable Outlook for Alabama Power reflect consistent financial performance and strong credit metrics expected over the next three years driven by a gradual improvement in industrial sales and timely recovery of costs through its regulatory mechanisms including Rate Stabilization & Equalization (RSE). Alabama Power enjoys a constructive regulatory environment and has consistently earned more than 13% ROE over the last five years. Alabama Power is expected to incur rising environmental expenditure to bring its coal dominated generation mix in compliance with the Environmental Protection Agency (EPA) rules. The environmental cost recovery clauses reduce the regulatory lag associated with such investments. Rating concerns for Alabama Power include a high reliance on the industrial sector, which makes up for approximately 37% of its total MWH sales. A prolonged economic slowdown or a double-dip recession in a stress case, can impact Alabama Power's credit metrics. However, while the metrics would see some degradation, these should continue to be in line with Fitch's guideline ratios for a low risk 'A' rated utility given the significant headroom that currently exists. For the last twelve months ending Sep. 30, 2012, Alabama Power's FFO to debt stood at 27% and adjusted debt to EBITDA was 2.9x. Fitch expects adjusted debt to EBITDA ratio to be in a 2.7x-2.75x range over the next three years. FFO to adjusted debt is expected to moderate to 25% by 2014 after the benefit of bonus depreciation recedes. What Could Trigger a Rating Action Strong Electric Sales Growth: Positive ratings actions for Alabama Power could be driven by strong electric sales spurred by robust economic growth and supportive regulatory actions that allow the utility to earn superior credit metrics. Sharp Industrial Slowdown: Negative rating actions for Alabama Power could result if its service territory witnesses a significant industrial slowdown that curtails its flexibility to earn attractive ROEs. The industrial slowdown will have to be much worse than that witnessed during 2008-09 recession to spur a downward rating action. Negative Regulatory Outcomes: Any unexpected negative regulatory developments that cause a mismatch between incurrence and recovery of capital and operating expenses could lead to negative rating actions. 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); --'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 Recovery Ratings and Notching Criteria for Utilities Rating North American Utilities, Power, Gas, and Water Companies