The one-notch upgrade to RGE's IDR reflects robust and improved credit metrics. Fitch had previously highlighted Debt to EBITDA sustaining below 3.6x as a positive rating trigger. Fitch expects Debt to EBITDAR to remain below 3.5x over the forecast period (2014 - 2017) even as capital spending levels increase beginning 2015. In addition, favorable ratemaking features such as revenue decoupling, commodity pass-through mechanism and a forward test year, and effective ring-fencing from its parent company also support the assigned IDR. RGE is an indirect, wholly owned regulated subsidiary of Iberdrola
KEY RATING DRIVERS
Robust Credit Metrics: Fitch expects RGE's EBITDA to improve over the forecast period driven by the regulator approved general rate increase. However, FFO is expected to lag the growth in EBITDA as benefits of bonus depreciation subside. Fitch expects Debt to EBITDAR ratio to average between 3.0x - 3.5x and FFO adjusted leverage to average 3.5 - 4.0x over the forecast period. These metrics are robust compared to Fitch's median-based guidelines for a low risk 'BBB' rated regulated utility.
Elevated Capital Expenditure: Fitch expects capital spending levels to increase beginning in 2015. RGE's plan presented to the
Near-term General Rate Case Likely: The last NYPSC approved general rate settlement was for a 40-month period that ended in
A Balanced Regulatory Environment: The ratemaking features of
Enhanced Regulatory Ring-fencing: The NYPSC imposed regulatory ring-fencing measures, through an
Sufficient Liquidity: RGE relies on bank revolving credit facilities, inter-company revolving credit facilities with IUSA, and an agreement with its affiliates, Central Maine Power Company (CMP) and
RGE jointly entered into a bank revolving credit facility (the Joint Facility) that allows maximum borrowings of up to
In 2013 RGE became a party to an intercompany agreement along with CMP and NYSEG, under which each party to the agreement may lend to, or borrow from, the other parties, when the respective party has either a temporary cash surplus or short-term borrowing need. The agreement allows the parties to optimize their aggregate liquidity positions.
Parent Company Liquidity: IUSA (consolidated) liquidity as of
No Material Debt Maturities: Debt maturities over the rating horizon are minimal and RGE has sufficient liquidity to manage its short-term borrowings (
Elevated capital spending over the rating horizon (2014 - 2017) and the upgrade of RGE's IDR to 'BBB' from 'BBB-' limit the possibility for a positive rating action in the near future. However, Fitch will take a positive rating action if the EBITDAR based leverage (adjusted debt/EBITDAR) declines to 3.3x or below on a sustainable basis.
Any deterioration in RGE's cash flow due to an adverse regulatory treatment of RGE's request to implement general rate case increase will lead to a negative rating action by Fitch. Fitch has relied on a balanced regulatory outcome in assigning the IDR. Fitch will also downgrade RGE if the EBITDAR based leverage increases to 4.0x or higher on a sustainable basis.
Fitch has upgraded the following ratings and revised the Outlook to Stable from Positive:
--IDR to 'BBB' from 'BBB-';
--Senior secured debt to 'A-' from 'BBB+';
--Senior unsecured debt to 'BBB+' from 'BBB';
--Short-term IDR to 'F2' from 'F3';
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
Hispanic #1 Breaking News for Entrepreneurs, Professionals and Small Business Owners - HispanicBusiness.com
SEPTEMBER 2, 2014
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