Fitch Rates Ameren Illinois Co.'s $250MM Senior Secured Notes 'A'
OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to Ameren Illinois Co.'s (AIC) new 4.15% $250 million issue of senior secured notes due March 15, 2046. The new notes will rank equally with AIC's existing senior secured obligations. Net proceeds will be issued to repay short-term debt, consisting of borrowings under the Ameren utility money pool.
KEY RATING DRIVERS
Pending Rate Proceedings: Fitch expects balanced rate decisions in AIC's pending electric and gas rate filings that will continue to support stable earnings and cash flows in 2016. AIC is seeking a $109 million Formula Rate Plan (FRP) electric rate increase and a $45 million gas rate increase, with the latter based on a 2016 forward test year. Favorably, AIC received constructive recommendations from administrative law judges in each respective rate proceeding. Final rate decisions for both proceedings are expected in December 2015, with new rates effective January 2016.
Elevated but Manageable Capex: AIC expects capex to range between $3.68 billion-$3.97 billion over 2015-2019, representing nearly 44% of consolidated capex over the period. By contrast, AIC spent approximately $2.6 billion on capital investments over 2010-2014. Fitch expects AIC to fund capex using a balanced mix of internal cash flows, long-term debt issuances and a relatively modest parent equity infusion in 2015.
Fitch does not expect a reduction to the transmission return on equity (ROE), as projected by management, to have a significant effect on AIC's earnings or trigger some downward revisions to projected capex spending in the transmission business. Management estimates a 50 basis points (bps) ROE reduction would reduce AIC's annual earnings by approximately $3 million.
Sustained Robust Financial Performance: Fitch forecasts the ratios of adjusted debt/EBITDAR, funds from operations (FFO) lease-adjusted leverage, and FFO fixed-charge coverage to average 3.3x, 3.4x, and 4.7x, respectively, over 2015-2017. Fitch's projections assume that AIC receives timely and adequate recovery of planned capital investments through FRP filings, and reflect increasing allowed ROEs over the forecast period, under the expectation of a rising interest rate environment.
Fitch's key assumptions within the rating case include:
--Flat sales growth through 2017;
--Base O&M escalated at 2% per annum;
--Balanced decisions in pending rate filings.
Future developments that may, individually or collectively, lead to a positive rating action:
No positive rating actions are anticipated in the near term.
Future developments that may, individually or collectively, lead to a negative rating action:
--Any adverse regulatory developments that prevent AIC from earning an adequate and timely return on sizeable projected capex;
--Adjusted debt to EBITDAR at or above 3.75x and FFO leverage at or above 5x on a sustained basis.
AIC has access to $800 million of credit capacity under a $1.1 billion bank credit facility that expires in December 2019. AIC shares the credit facility with parent Ameren Corp. (AEE), which has a sub-borrowing limit of $500 million. At Sept. 30, 2015, AIC had no commercial paper (CP) borrowings outstanding or cash and cash equivalents. Additional liquidity is provided by an intercompany money pool that provides for short-term cash and working capital requirements. AIC had $122 million of borrowings outstanding under the money pool at Sept. 30, 2015.