Proceeds from the issuance will be used for general corporate purposes including repayment of series D and G secured MTNs on
Key Rating Drivers
--Energy Strong Settlement;
--Robust credit metrics;
--A constructive regulatory environment in
--Large capex program.
Energy Strong Settlement
PSE&G currently has an ROE of 10.3%, a level moderately above recently approved ROEs for the industry which average closer to 10%. The additional capital investment under the Energy Strong program is incrementally positive to Fitch's near-term forecasts. The timeline for the new GRC is beyond Fitch's three-year financial model.
Robust Credit Metrics
Fitch expects strong EBITDA growth from recently completed as well as new transmission projects currently under construction that will propel earnings and cash flow measures through Fitch's 2016 forecast period. In Fitch models, PSE&G earns its 10.3% ROE, and recent transmission investments that earn a
Credit metrics are expected to remain strong and PSE&G did not pay a dividend to its parent in 2013, allowing it to maintain its capital structure at its authorized 51.2% equity component during a period of heavy capex. Through 2016, Fitch expects EBITDAR-to-interest to average between 6.5x-7.0x, and debt-to-EBITDAR to approximate 3.0x, measures that compare favorably to industry peers.
Growth Capital Spending
PSE&G is in the midst of a large capital spending program that is largely centered on transmission projects and the
Constructive Regulatory Environment
PSE&G operates in a balanced regulatory environment, with oversight from the BPU. The BPU permits PSE&G to use several regulatory mechanisms to recover costs in a timely manner, and has also implemented a weather normalization clause at the natural gas utility. These regulatory mechanisms enhance the predictability of utility cash flows by mitigating the effect of exogenous factors.
Negative: A negative rating action could occur if
--PSE&G failed to maintain its existing capital structure or earn an adequate return on investment during this period of elevated capex;
--EBITDAR-to-interest coverage below 5.0x or debt-to-EBITDAR above 3.5x on a sustained basis could result in a downgrade.
Positive: A positive rating action is not considered likely during the large capex cycle.
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 - Sector Credit Factors',
'Recovery Ratings And Notching Criteria For Utilities',
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)
Recovery Ratings and Notching Criteria for Utilities
Source: Fitch Ratings
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