NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A+' rating to NSTAR Electric's $400 million issuance of 2.375% senior unsecured notes due Oct. 15, 2022.
Proceeds will be used to repay outstanding $400 million 4.875% Debentures due Oct. 15, 2012, and for general corporate purposes. The notes will rank on parity in right of payment with all existing and future senior unsecured debt. The Rating Outlook for NSTAR Electric is Stable.
Stable Credit Profile: NSTAR Electric's rating reflects the strong stand-alone credit measures of the utility, including the low-risk nature of its regulated transmission and distribution operations, which deliver superior cash flow metrics due in large part to balanced regulatory treatment. The rating also takes into consideration linkage with ultimate parent company, Northeast Utilities (Issuer Default Rating 'BBB+'/Stable Outlook).
Financial metrics are superior relative to Fitch guidelines for the rating and risk profile, with rating forecasts for EBITDA to interest and FFO to debt at or near 7.0 times (x) and 24%, respectively through 2014. Projected credit measures include merger-related regulatory conditions, such as a one-time non-recoverable $15 million customer rate credit, a 44-month base distribution rate freeze, and storm cost deferrals, in addition to the absence of bonus depreciation. The continuation of existing rate-making regulatory mechanisms is expected to stabilize a material deterioration in financial metrics.
Balanced Regulatory Treatment: The inclusion of distribution rate order features, including timely recovery of costs related to energy supply, energy efficiency, the energy portion of bad debt, and pension and post-retirement benefits other than pension costs, are supportive of credit quality. NSTAR Electric has a Federal Regulatory Commission (FERC)-approved return on equity of 11.14% on local transmission facility investments and 11.64% on regional transmission facilities.
Liquidity Position and Funding Needs: Fitch considers NSTAR Electric's liquidity position to be sufficient relative to funding needs. The utility has a $450 million stand-alone multi-year bank credit facility that matures in July 2017, and available borrowing capacity at June 30, 2012 was $105.5 million. Bank credit supports the utility's commercial paper program.
Utility funding needs are moderate, with near-term debt re-financings limited to a $300 million note maturing in 2014. NSTAR Electric's five-year capital plan of $1.8 billion is focused primarily on system improvements and reliability projects, including a new 345-kV, 26 mile transmission line serving southeastern Massachusetts and Cape Cod.
Fitch expects utility funding needs to be met with through a combination of internal cash flows and external debt financings. NSTAR Electric's access to the bank credit and debt capital markets is viewed by Fitch as unrestricted.
Negative Rating Action Trigger:
--An inability to manage costs during the base distribution rate freeze period could negatively affect the utility's financial position and put pressure on the ratings.
--An inability to earn adequate and timely returns on invested capital.
Positive Rating Action Trigger:
--Positive rating action at NSTAR Electric is not envisioned at this time.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);
--'Rating North American Utilities, Power, Gas and Water Companies' (May 16, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Utilities
Parent and Subsidiary Rating Linkage
Rating North American Utilities, Power, Gas, and Water Companies
Lindsay Minneman, +1 212-908-0592
33 Whitehall St.
New York, NY 10004
Rob Hornick, +1 212-908-0523
Ralph Pellecchia, +1 212-908-0586
Brian Bertsch, +1 212-908-0549
Source: Fitch Ratings