Fitch Rates NSTAR Electric Company's $250MM Debentures 'A+'
OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to NSTAR Electric Company's (NSTAR Electric) $250 million, 2.70% debentures due June 1, 2026. The debentures will rank pari passu with NSTAR Electric's other unsecured debt.
The Rating Outlook on NSTAR Electric's 'A' Long-Term Issuer Default Rating (IDR) is Stable.
Net proceeds from the issuance will be used to repay outstanding short-term debt, which was used to fund the repayment of NSTAR Electric's $200 million variable rate note maturity earlier this month, and for other general corporate purposes.
KEY RATING DRIVERS
Low-Risk Business Profile: NSTAR Electric's ratings primarily reflect the low-risk business profile and stable cash flows of the utility's regulated electric transmission and distribution operations. NSTAR Electric has no commodity exposure and fully recovers its energy supply costs. An increasing share of earnings and cash flow is expected from transmission investments regulated by the Federal Energy Regulatory Commission (FERC), which Fitch considers to be among the most constructive regulatory jurisdictions.
Strong Financial Metrics: NSTAR Electric's financial profile is very strong, benefiting from a conservative capital structure and robust cash flows. Near-term capex for additional FERC-regulated transmission projects should enable the utility to maintain its financial strength. Fitch expects adjusted debt/EBITDAR to average around 3.0x through 2018, with FFO fixed-charge coverage to remain above 6.0x, and FFO-adjusted leverage averaging around 3.7x.
Sizable Capex: Capex is expected to remain elevated through 2018, due in large part to significant investments in FERC-regulated regional transmission projects that receive timely cost recovery and above-average returns. Management forecasts transmission capex to total $905 million over 2016-2019, with peak-year spending of $302 million projected for 2016. Fitch expects NSTAR Electric to fund the capex in a manner that preserves its existing capital structure.
Supportive Cost Recovery Mechanisms: NSTAR Electric operated under a rate freeze that went into effect in April 2012 and extended through the end of 2015. Tracking mechanisms, along with cost controls, enabled NSTAR Electric to maintain a strong credit profile despite the rate freeze. Costs recoverable outside of base rates include pension and post-retirement benefits, energy efficiency program costs and the associated lost revenue, storm costs, and a net metering surcharge.
Parent-Subsidiary Rating Linkage: There is a moderate-to-strong linkage between the ratings of NSTAR Electric and its parent, Eversource Energy (Eversource; 'BBB+'/Stable Outlook). Fitch considers the two-notch difference between the Long-Term IDRs of the two entities to be the maximum allowed differential.
Fitch's key assumptions within the rating case for NSTAR Electric include:
--Annual electric sales growth averaging 0%-0.5% through 2018;
--O&M expense remaining relatively flat through 2018;
--Transmission capex totaling $905 million over 2016-2019.
Positive Rating Action: A positive rating action is not likely due to NSTAR Electric's already strong credit rating. Ratings upside is also restricted by the two-notch difference between the Long-Term IDRs of NSTAR Electric and Eversource.
Negative Rating Action: A negative rating action is not likely, given NSTAR Electric's strong position within its current rating category. However, ratings could be downgraded if adjusted debt/EBITDAR were to increase above 3.5x and FFO fixed-charge coverage dropped below 4.8x on a sustained basis. Ratings would be downgraded if Eversource's Long-Term IDR were downgraded, given Fitch's maximum allowed two-notch difference between the Long-Term IDRs of the two entities.
Fitch considers NSTAR Electric's liquidity to be adequate.
NSTAR Electric maintains its own $450 million revolving credit facility that terminates on Sept. 4, 2020. The credit facility serves to backstop an equal-sized commercial paper program. As of March 31, 2016, NSTAR Electric had $148.5 million in short-term borrowings, leaving $301.5 million of available capacity.
NSTAR Electric's utility operations require modest cash on hand; the company had $3.5 million unrestricted as of March 31, 2016. Near-term debt maturities are manageable, with $400 million of 5.625% debentures maturing in November 2017.