S&P: ITC Great Plains LLC 'A-' Rating Affirmed On Improved Liquidity; Outlook Negative
"Our revised liquidity assessment for ITC Great Plains reflects our revised expectations of diminishing capital expenditures, ample undrawn capacity on its credit facility expiring in 2019, and no long-term debt maturities until 2044," said S&P Global Ratings credit analyst Tyler Smith. Specifically, we expect that ITC Great Plains' liquidity sources will exceed its uses by more than 2x for the next 24 months, consistent with exceptional liquidity.
Our assessment of ITC Great Plains' business risk profile as excellent reflects our view of a fully regulated and lower-risk transmission business that operates with credit-supportive regulation. The Federal Energy Regulatory Commission regulates ITC Great Plains and overall we view the company as effectively managing regulatory risk. This includes the company's ability to recover its costs and return on investments on a forward-looking basis, achieve authorized rates of return that are often incentive-based, and an authorized capital structure that incorporates an equity component of about 60%. The business risk profile assessment also incorporates our view of the company's relative small size and limited geographic diversity, reflecting operations in parts of Kansas and Oklahoma, and our view of the company's stable track record of maintaining transmission system reliability.
We assess ITC Great Plains' financial risk profile as intermediate, using our low volatility table. The use of this table results from the vast majority of the company's cash flows coming from lower-risk transmission operations and the company's effective management of regulatory risk. Our base-case scenario contemplates funds from operations (FFO) to debt of approximately 19%-22%.
The negative outlook on ITC Great Plains reflects the probability that we could downgrade Fortis Inc. following its acquisition of parent ITC Holdings Corp. The negative outlooks on ITC Great Plains and ITC Holdings incorporates Fortis' execution and integration risks, as well as the likelihood that Fortis' consolidated financial measures could weaken because of increased consolidated debt from the acquisition's financing.
We could downgrade ITC Great Plains following Fortis' acquisition of ITC Holdings if Fortis' consolidated financial measures weaken such that FFO to debt remains consistently below 10%. This could occur if there are adverse regulatory conditions imposed on the acquisition, if Fortis faces operational difficulties, or if there are material cost overruns from post-merger integration efforts. We could also lower ITC Great Plains' rating if ITC Holdings' consolidated FFO to debt drops consistently below 9%.
We could affirm the rating on ITC Great Plains and revise the outlook to stable if ITC Holdings' consolidated FFO to debt consistently approximates 10% and Fortis' consolidated FFO to debt is consistently above 10%. This could occur if the acquisition is completed with sufficient equity and in a manner that preserves Fortis' credit measures.