NEW YORK--Fitch Ratings has assigned an 'A' rating to The Connecticut Light and Power Company's (CL&P) $50 million add-on issuance of first and refunding mortgage bonds (FMBs). The 4.15% FMBs rank pari passu with CL&P's existing secured debt and mature June 1, 2045.
The Rating Outlook on CL&P's 'BBB+' Issuer Default Rating (IDR) is Positive.
KEY RATING DRIVERS
Low-Risk Business Profile: CL&P's ratings reflect the low-risk profile and stable cash flows of its regulated electric transmission and distribution operations. CL&P has no commodity exposure and recently implemented a decoupling mechanism that eliminates the impact of weather and usage patterns on electric revenue. An increasing share of earnings and cash flows is expected from Federal Energy Regulatory Commission (FERC) transmission investments that provide timely recovery of invested capital.
Improving Financial Profile: Credit quality measures improved in each of the past two years and are expected to continue the uptrend over the next few years. The expected improvement reflects higher distribution rates effective December 2014 following the expiration of a two-year rate freeze, growth from FERC-regulated transmission assets, and O&M reductions from cost-saving efficiencies. Fitch expects adjusted debt/EBITDAR to continue to improve over 2015 and 2016, with FFO fixed-charge coverage expected to be around 5.0x and FFO adjusted leverage around 4.0x.
Sizable Capex: Capex is expected to remain elevated due in large part to significant investments in FERC-regulated regional transmission projects that received timely cost recovery and above-average returns. Forecast transmission capex is $871 million over the next four years, an increase of approximately 10% over the prior four-year period. A moderate rise in distribution expenditures is also likely. Fitch anticipates the capex will be funded in a manner to preserve the roughly 50% equity ratio employed in the December 2014 rate decision.
Fitch's key assumptions within the rating case for CL&P include:
--Annual electric sales growth averaging 0.0%-0.5% through 2018;
--O&M expense decreasing by an average of 3.0% per year through 2018;
--Transmission capex totaling $871 million over 2015-2018.
Positive: Achieving targeted cost reductions and decreasing adjusted debt/EBITDAR below 3.5x on a sustainable basis could lead to a ratings upgrade.
Negative: A ratings downgrade is not likely, given the Positive Outlook, but could occur if adjusted debt/EBITDAR were to exceed 4.0x on a sustained basis.
Liquidity is considered adequate.
CL&P, its parent, Eversource Energy (Eversource, 'BBB+'/Outlook Stable), and CL&P's sister utilities Public Service Company of New Hampshire (PSNH, 'BBB+'/Outlook Positive), Western Massachusetts Electric Company (WMECO, 'BBB+'/Outlook Positive), NSTAR Gas Company (NSTAR Gas, 'A-'/Outlook Stable), and Yankee Gas Services Company (Yankee Gas, not rated by Fitch) participate in a joint $1.45 billion revolving credit facility that matures Sept. 4, 2020. The credit facility primarily supports Eversource's $1.45 billion commercial paper (CP) program, which Eversource uses to provide its subsidiaries with intercompany loans.
Under the facility, CL&P has a $600 million borrowing sublimit, with PSNH and WMECO at $300 million each and NSTAR Gas and Yankee Gas at $200 million each. As of Sept. 30, 2015, Eversource had $757 million in short-term borrowings outstanding under its CP program, leaving $693 million of available borrowing capacity. CL&P had no outstanding intercompany loans due to Eversource as of Sept. 30 2015, while PSNH and WMECO owed Eversource $137 million and $126 million, respectively.
CL&P's utility operations require modest cash on hand, of which the company had $13.4 million unrestricted as of Sept. 30, 2015. Near term debt maturities are manageable, with $250 million of FMBs maturing in 2017, $300 million of FMBs maturing in 2018, and $250 million of FMBs maturing in 2019.
Date of Relevant Rating Committee: Sept. 29, 2015.
Additional information is available on www.fitchratings.com.