TEXT - Fitch rates Wisconsin Electric Power Co
Dec 6 - Fitch Ratings has assigned an 'A+' rating to Wisconsin Electric Power Co.'s(WEPCO) new $250 million issue of 3.65% senior unsecured debentures due Dec. 15, 2042. The Rating Outlook is Stable. The new debentures will rank equally with WEPCO's other senior unsecured debt. Proceeds will be used to repay short-term debt and for working capital and other general corporate purposes. Key Ratings Drivers Cash Flow Stability WEPCO's credit profile reflects the predictable cash flows of its regulated electric, gas, and steam businesses. Each of the businesses operate with a fuel and purchased power recovery mechanism that limits commodity price exposure and cash flow volatility and lowers business risk. Solid Credit Measures WEPCO's ratings are supported by credit protection measures that are consistent with Fitch's target financial ratios for those issuers rated with an 'A' Issuer Default Rating (IDR). Fitch expects the ratio of EBITDA/Interest to approximate 5.7 times (x), and Debt/EBITDA, 3.7x, over the 2012 - 2016 time period. Constructive Regulatory Compact The tariff structure in Wisconsin is favorable with above-average authorized returns on equity (ROEs), the use of forward-looking test years, a healthy equity component in the capital structure, and a partial cash return on construction work in progress (CWIP). On Nov. 28, 2012, WEPCO was granted a two-step net rate increase for its electric customers of approximately $115 million in 2013 and $75 million in 2014, including an authorized 10.4% return on equity. The net rate increases incorporate renewable energy tax grant offsets generated by WEPCO for its investments in the Rothschild biomass facility and other renewables. The rate increase reflects cost recovery of previously-approved investments in pollution-control equipment at the old Oak Creek units, the Glacier Hills Wind Park project which went online in December 2011, construction costs at the Rothschild biomass plant, and the finalization of Oak Creek PTF expansion costs. A final written order by the Wisconsin Public Service Commission is expected by the end of December 2012. Fitch believes the rate decision to be supportive of projected credit metrics. Adequate Liquidity WEPCO's liquidity is supported by a $500 million bank credit facility that expires in December 2013. At Sept. 30, 2012, there was $255.4 million of borrowings outstanding under the credit facility, and WEPCO had $12.1 million of cash on hand. Fitch considers debt maturities to be manageable with $300 million due in 2013, $300 million due in 2014, and $250 million due in 2015. Elevated Capital Spending Capital investments are expected to approximate $2 billion over the 2012-2014 time frame. Capital spending will focus primarily on the upgrade of WEPCO's aging distribution infrastructure, with investments in renewables and pollution control equipment at the old Oak Creek units near completion. Fitch expects WEPCO to use a balanced mix of internally generated cash flows and debt issuances to support funding needs, and the company should continue to have ample access to capital markets. WHAT COULD TRIGGER A RATING ACTION Positive Rating Actions No positive rating action is anticipated in the near term. Negative Rating Actions --Inability to recover future capital investments on a timely basis could have a negative impact on ratings. --A decline on a sustainable basis in EBITDA/interest below 5x and Debt/EBITDA above 4x could lead to a rating action.
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