Fitch has affirmed WEC's Short-term IDR at 'F2'.
Fitch has also placed the ratings of
As part of the acquisition,
Upon completion of the transaction, the combined company will be named
KEY RATING DRIVERS
Increasing Leverage: The proposed acquisition results in a meaningful increase in consolidated leverage compared to WEC's current and projected pre-acquisition financial position. This is primarily driven by the combination of
Jump in Dividend: Fitch's concerns also relate to the aggressive dividend policy adopted by management with a projected increase in dividend per share post- closing of the transaction and continuation of a 65% to 70% dividend payout target on a higher base. At year-end 2013, WEC's dividend payout ratio was 57%. Fitch expects WEC to utilize its existing positive cash flow position and additional available cash stemming from the termination of its
Credit Metrics: Fitch expects leverage metrics of the combined entities to be weak for the current rating category and significantly weaker than WEC's stand-alone credit profile. Fitch forecasts pro-forma FFO lease-adjusted leverage in the first full year of operation to approximate 4.7x and Adjusted Debt/EBITDAR near 4.4x. WEC's stand-alone FFO lease-adjusted leverage is projected to be closer to 4x and adjusted debt/EBITDAR closer to 3.5x.
Regulatory Diversification: Completion of the proposed acquisition will further diversify consolidated earnings and cash flows, with the addition of
Regulatory Concessions: Regulatory approvals are required in the four state jurisdictions of
Factors that could lead to a positive rating action:
Given WEC's projected incremental leverage and pending acquisition of
Factors that could lead to a negative rating action:
If, after completion of the
Unfavorable regulatory developments, including significant ratepayer concessions or rate freezes required as a condition to approve the acquisition, that would pressure earnings and cash flow could lead to a negative rating action at WEC.
More aggressive financial management policies that result in higher parent-level leverage could also lead to negative rating actions.
Fitch has placed the following ratings on Rating Watch Negative:
--Long-term IDR 'A-';
--Senior unsecured debt at 'A-';
--Junior subordinated debentures at 'BBB'.
--Long-term IDR at 'A-';
--Senior unsecured debt at 'A-'.
Fitch has affirmed the following ratings:
--Short-term IDR and CP at 'F2'.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (
--'Rating U.S. Utilities, Power and Gas Companies' (
Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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