TEXT - S&P raises Alliant Energy Corp rating

Fri Jan 11, 2013 4:23pm EST

Related Topics

Overview
     -- We are raising our corporate credit ratings on regional utility 
holding company Alliant Energy Corp. and its subsidiary Interstate Power and 
Light Co. (IPL) to 'A-' because of a fully regulated utility strategy now that 
the renewable energy engineering and construction business is being sold, and 
our expectation that financial measures will continue to remain at the 
currently robust credit supportive levels.
     -- We are raising our corporate credit rating on utility subsidiary 
Wisconsin Power and Light Co. (WPL) to 'A' and our short-term rating on the 
subsidiary to 'A-1'.
     -- The outlooks are stable, and we are maintaining the business risk 
profiles as "excellent" and financial risk profiles as "significant".

Rating Action
On Jan. 11, 2013, Standard & Poor's Ratings Services raised its corporate 
credit ratings on Alliant Energy Corp. and utility subsidiary Interstate Power 
and Light Co. to 'A-' from 'BBB+'. At the same time, we raised the corporate 
credit rating on utility subsidiary Wisconsin Power and Light to 'A' from 'A-' 
and the short-term rating on the subsidiary to 'A-1' from 'A-2'. The outlooks 
are stable.

Rationale
The rating on Alliant is based on the consolidated credit profile, including 
IPL and WPL, and consists of an excellent business risk profile and a 
significant financial risk profile. Alliant owns electric generation and 
distribution and natural gas distribution utility subsidiaries IPL, which 
serves customers in Iowa and Minnesota, and WPL, which operates in Wisconsin.

Our rating on Alliant reflects a regulated utility strategy that includes 
ongoing capital spending and a dependence on timely cost recovery of these 
expenditures and related operating expenses. We expect this, along with the 
reduction of bonus depreciation, to weaken cash flow measures over time. 
However, we expect debt leverage to remain manageable. We assume that 
electricity use in these service territories will continue to steadily grow. 
In addition to the two utilities, Alliant owns part of the American 
Transmission Co. LLC and has an unregulated subsidiary, Alliant Energy 
Resources LLC (AER), which operates a short-haul railroad and barge business, 
a 100-megawatt merchant wind farm, and is selling a renewable energy 
engineering and construction business. The sale should further bolster the 
excellent business risk profile.

We consider Alliant's business risk profile to be excellent due to stable cash 
flows from IPL and WPL that, combined, deliver low-cost electricity and 
natural gas to customers in jurisdictions in which we consider the regulatory 
environment to be "more credit supportive". Moderate industrial concentration, 
a large construction program, and the need for ongoing rate relief during a 
weak economy somewhat lessen the strengths of the utilities. Also reflected in 
the business risk profile is a company that has divested, or in the process of 
selling, almost all unregulated operations, including previously owned 
international businesses. As the utilities continue to spend on generation and 
renewable investments, operating cash flow has risen through rate riders, 
forecasted test periods, and earning a return on construction work in 
progress. IPL's and WPL's business risk profiles are excellent, in our 
assessment. Reflected in the business risk profile is our assessment of the 
company's management and governance as "satisfactory".

Alliant's significant financial risk profile reflects adjusted consolidated 
financial measures that have been more than sufficient for the rating. In 
addition, we consider the company's financial policies to be credit supportive 
and transparent. Over the next few years, we project financial measures will 
remain in line with the rating, albeit with less cushion for the significant 
financial risk profile. Even with lower industrial and wholesale sales, as the 
full cost recovery of larger construction projects and power plant 
acquisitions are incorporated into operating cash flow, financial measures are 
projected to improve in the outer years. For the 12 months ended Sept. 30, 
2012, funds from operations (FFO) to total debt and debt to total capital were 
22% and 53%, respectively. Debt to EBITDA remained steady at 3.8x. The company 
also had positive free operating cash flow during the same period. However, 
discretionary cash flow continues to be negative after dividend payments and 
net cash flow (FFO less dividends) to capital expenditures remained less than 
100%, at 78%, indicating a need for external funding to finance capital 
spending. FFO interest coverage was a robust 5.1x.

Under our base case forecast, we expect financial measures will weaken to the 
point where FFO to debt is about 21%, debt to EBITDA remains about 4x, and 
debt to total capital averages about 55%. Cash flow measures are expected to 
weaken if IPL extends an existing purchase power agreement through 2025. We 
also expect net cash flow to capital expenditures to be about 75% and 
discretionary cash flow to remain materially negative over the next several 
years. We project that FFO interest coverage will fall to less than 5x. These 
weaker financial measures reflect decreasing FFO over the next few years, 
partly from the reduction of bonus depreciation. We also expect debt leverage 
to climb as the company spends on environmental and generation investments. 
The consolidated adjustments for Alliant reflect purchased-power obligations, 
operating leases, pension-related items, and intermediate equity treatment of 
preferred stock.

Liquidity
The short-term rating on Alliant is 'A-2'. We consider Alliant's liquidity 
"adequate" (as our criteria define the term) under Standard & Poor's liquidity 
methodology. We base our liquidity assessment on the following factors and 
assumptions:
     -- We expect Alliant's liquidity sources over the next 12 months, 
including cash, FFO, and credit facility availability, to exceed uses by 1.2x. 
Uses include necessary capital spending, working capital, debt maturities, and 
shareholder distributions.
     -- Debt maturities are manageable over the next 12 months.
     -- We believe liquidity sources would exceed uses even if EBITDA 
decreased 15%.

In our assessment, Alliant has good relationships with its banks and has a 
good standing in the credit markets, having successfully issued debt during 
the recent credit crisis.

In our analysis of liquidity over the next 12 months, we assume $1.4 billion 
of liquidity sources, consisting of FFO and credit facility availability. We 
estimate liquidity uses of $1 billion for capital spending, maturing debt, 
working capital, and shareholder distributions.

Alliant's credit agreement includes a financial covenant requiring that debt 
to total capitalization be no greater than 65%, and the utilities both have a 
maximum of 58%. As of Sept. 30, 2012, Alliant and the utilities were in 
compliance with the covenants, with debt to capitalization levels of about 45%.

Debt maturities are very manageable through 2015, with $300 million due in 
2014 and about $180 million due in 2015. The next significant maturity is in 
2018, when approximately $360 million is due. We expect that the company will 
refinance a majority of its maturing debt.

Outlook
The stable rating outlook on Alliant reflects our expectation that management 
will continue to focus on its core utility operations and reach constructive 
regulatory outcomes to avoid any meaningful rise in business risk. We would 
expect the regulated utility operations to reach constructive regulatory 
outcomes to avoid higher business risk, particularly through the ongoing 
capital spending phase and a weak economy that has resulted in modest cash 
flow erosion from industrial load loss and lower wholesale sales.

The outlook also takes into account our projection that cash flow measures 
will decrease as construction projects move forward and the benefits of bonus 
depreciation recede. Specifically, our base forecast includes FFO to total 
debt of more than 20%, debt to EBITDA of about 4x, and debt to total capital 
averaging about 55%, consistent with our expectation for the rating.

We could lower ratings if financial measures consistently underperform our 
base case forecast and remain at less credit supportive levels, including FFO 
to total debt of less than 20%, debt to EBITDA of more than 4x, and debt 
leverage of more than 55%. Although unlikely over the next few years, we could 
raise ratings if financial measures strengthen and consistently exceed our 
base case forecast, including FFO to total debt greater than 23% and debt to 
total capital of less than 50%.

Related Criteria And Research
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- 2008 Corporate Ratings Criteria: Ratios And Adjustments, April 15, 
2008 
     -- Methodology: Management And Governance Credit Factors For Corporate 
Entities And Insurers, Nov. 13, 2012

Ratings List
Upgraded; Short-Term Ratings Affirmed
                                        To                 From
Alliant Energy Corp.
Interstate Power & Light Co.
 Corporate Credit Rating                A-/Stable/A-2      BBB+/Stable/A-2

Alliant Energy Resources LLC
 Corporate Credit Rating                A-/Stable/NR       BBB+/Stable/NR

Upgraded
                                        To                 From
Wisconsin Power & Light Co.
 Corporate Credit Rating                A/Stable/A-1       A-/Stable/A-2
  Senior Unsecured                      A                  A-
   Preferred Stock                      BBB+               BBB
   Commercial Paper                     A-1                A-2

Alliant Energy Corp.
 Senior Unsecured                       BBB+               BBB

Interstate Power & Light Co.
 Senior Unsecured                       A-                 BBB+
  Preferred Stock                       BBB                BBB-

Ratings Affirmed

Alliant Energy Corp.
 Commercial Paper                       A-2
Interstate Power & Light Co.
 Commercial Paper                       A-2
FILED UNDER: