(The following statement was released by the rating agency)
Oct 11 - Fitch Ratings has assigned an 'A+' rating to Alabama PowerCompany's (APC) issuance of $400 million series 2012B 0.550% senior notes dueOct. 15, 2015. The Rating Outlook is Stable.
The notes are senior, unsecured obligations of APC and will rank equally withall other unsecured and unsubordinated obligations of the company and junior toall secured indebtedness, which stood at approximately $153 million as of June30, 2012.
The net proceeds from the offering will be used for redeeming series 2007C 6.00%senior insured monthly notes due Oct. 15, 2037 and for general corporatepurposes, including the continuous construction program at the company.
The ratings and Stable Outlook for Alabama Power reflect consistent financialperformance and strong credit metrics expected over the next three years drivenby a gradual improvement in industrial sales and timely recovery of coststhrough its regulatory mechanisms including Rate Stabilization & Equalization(RSE). Alabama Power enjoys a constructive regulatory environment and hasconsistently earned more than 13% ROE over the last five years. Alabama Power isexpected to incur rising environmental expenditure to bring its coal dominatedgeneration mix in compliance with the Environmental Protection Agency (EPA)rules. The environmental cost recovery clauses reduce the regulatory lagassociated with such investments.
Rating concerns for Alabama Power include a high reliance on the industrialsector, which makes up for approximately 37% of its total MWH sales. A prolongedeconomic slowdown or a double-dip recession in a stress case, can impact AlabamaPower's credit metrics. However, while the metrics would see some degradation,these should continue to be in line with Fitch's guideline ratios for a low risk'A' rated utility given the significant headroom that currently exists. Fitchexpects adjusted debt to EBITDA ratio to remain in the 2.7x-2.75x range over thenext three years. FFO to adjusted debt is expected to moderate to 25% by 2014after the benefit of bonus depreciation recedes.
Positive ratings actions for Alabama Power could be driven by strong electricsales spurred by robust economic growth and supportive regulatory actions thatallow the utility to earn superior credit metrics. Any unexpected negativeregulatory developments that cause a mismatch between incurrence and recovery ofcapital and operating expenses could lead to negative rating actions in thefuture as also a sharp industrial slowdown in Alabama Power's service territorythat curtail its flexibility to continue to earn attractive ROEs.
(Caryn Trokie, New York Ratings Unit)