OREANDA-NEWS. Fitch Ratings has assigned a 'BBB+' rating to Xcel Energy Inc.'s (Xcel) $400 million, 2.40% senior notes due March 15, 2021. Fitch has also assigned an additional $350 million to the existing $250 million, 3.30% notes due June 1, 2025, which are rated 'BBB+'. Both notes are unsecured and will rank pari passu with Xcel's other unsecured notes.

The Rating Outlook is Stable.

Net proceeds will be used to fund the repayment at maturity of Xcel's $450 million of 0.75% senior notes due May 9, 2016, to repay short-term debt borrowings, and for other general corporate purposes.

KEY RATING DRIVERS

Conservative Business Model: Xcel's ratings largely reflect the relatively stable earnings and operating cash flows of the company's four regulated utility subsidiaries: Northern States Power Company-Minnesota (NSP-Minnesota), Northern States Power Company-Wisconsin (NSP-Wisconsin), Public Service Company of Colorado (PSCo), and Southwestern Public Service Company (SPS). Xcel's strategy remains focused on its regulated utility businesses and obtaining timely recovery of their capital investments.

Mostly Constructive Regulatory Environment: Xcel benefits from exposure to regulatory environments that have been mostly constructive. PSCo and NSP-Wisconsin have received balanced treatment in their recent rate cases in Colorado and Wisconsin, respectively, and are allowed the used of riders that provide timely recover of capital investments. NSP-Minnesota has also received balanced regulatory treatment, excluding last year's disallowment of a return on $333 million of cost overruns associated with the Monticello nuclear plant uprate and life extension project. SPS, however, operates in a challenging regulatory environment in New Mexico and Texas.

Solid Financial Metrics: Fitch forecasts credit metrics to remain supportive of credit quality, with FFO fixed charge coverage averaging 5.5x, FFO adjusted leverage averaging 4.3x, and adjusted debt-to-EBITDAR averaging 4.2x over 2016 - 2018. The FFO metrics do not incorporate the recent renewal of bonus depreciation, but do factor in tax benefits associated with the utilization of net operating losses (NOLs) at Xcel.

Elevated Capex: Consolidated capex remains elevated over the forecast period. Capex over 2016 - 2020 is projected to total approximately $15.2 billion. Management expects about 72% to be allocated to NSP-Minnesota and PSCo, and for transmission and distribution each to represent 27% of consolidated capex.

The utilities benefit from nonfuel rate riders that facilitate timely recovery of capital investment costs and support utility credit quality. Fitch anticipates Xcel will support the sizeable capital spending levels across the utility subsidiaries through equity infusions. In turn, Fitch expects Xcel to meet group funding needs through a balanced mix of external debt and equity financing.

Standard Notching: There is a moderate-to-strong linkage between the Issuer Default Ratings (IDRs) on Xcel and each of its subsidiaries. The linkages originate primarily from strategic drivers. Each subsidiary is important to Xcel, and the parent financially supports its subsidiaries when needed via equity infusions and funding the inter-company money pool. Fitch considers a one- to two-notch differential between the IDRs of Xcel and its subsidiaries to be appropriate.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Xcel include:
--Electric sales growth averaging 1.0% - 1.5% per year for 2016 - 2019;
--O&M expense growing at ~2% per year for 2016 - 2019;
--Capex of ~$11.6 billion over 2016 - 2019;
--Rate case outcomes consistent with historical rate orders.

RATING SENSITIVITIES

Positive Rating Action: The negative impacts from last year's Minnesota rate order and disallowance of costs at the Monticello plant, and funding of a large multiyear capital investment plan at the utilities limit the prospects for a positive rating action in the near-term.

Negative Rating Action: Developments that may lead to a negative rating action include a material deterioration of the overall regulatory environment that results in an inability to adequately recover large capital investments; adjusted debt-to-EBITDAR weakening to 4.6x on a sustained basis; or a reduction in the level of parent support Xcel provides to its utilities.

LIQUIDITY

Fitch considers Xcel's liquidity to be adequate. Xcel and its utility subsidiaries primarily meet their short-term liquidity needs through the issuance of commercial paper (CP) under an aggregate $2.75 billion revolving credit facility that expires in October 2019. Xcel and its utility subsidiaries had $846 million of CP issued and $29 million of letters of credit drawn at Dec. 31, 2015, leaving an aggregate of $1.875 billion of availability under this five-year unsecured facility. Xcel's utilities require modest cash on hand, and Xcel had $85 million as of Dec. 31, 2015, all of which was unrestricted.

Liquidity is also available to Xcel's utility subsidiaries through participation in a money pool. Xcel may make investments in the utility subsidiaries at market-based interest rates, but the utilities are not permitted to lend to Xcel under the money pool arrangement.

Xcel's holding company-level long-term debt maturities are manageable. Xcel has $254 million of 5.613% unsecured senior notes due April 2017 and $250 million of 1.2% unsecured senior notes due June 2017. The next long-term debt maturity is in May 2020, when $550 million of 4.7% unsecured senior notes comes due. Xcel's utility subsidiaries issue their own debt and have manageable long-term debt maturity schedules.

Fitch expects Xcel and its utility subsidiaries to maintain ready access to the capital markets to fund capex and refinance maturing long-term debt.