NEW YORK--Fitch Ratings has assigned an 'A+' rating to NSTAR Electric Company's (NSTAR Electric) $250 million issuance of debentures. The 3.25% debentures rank pari passu with NSTAR Electric's existing unsecured debt and mature Nov. 15, 2025.
The Rating Outlook on NSTAR Electric's 'A' Issuer Default Rating (IDR) is Stable.
KEY RATING DRIVERS
Strong Financial Metrics: NSTAR Electric's financial profile is very strong, and Fitch expects it to remain so due to robust cash flows from ongoing transmission projects regulated by the Federal Energy Regulatory Commission (FERC). Fitch expects adjusted debt/EBITDAR to average around 3.0x through 2018, with funds from operations (FFO) fixed-charge coverage to remain above 6.0x and FFO adjusted leverage averaging around 3.7x.
Resiliency Despite Rate Freeze: NSTAR Electric has been operating under a rate freeze that went into effect in April 2012 and extends through the end of this year. Existing tracking mechanisms, along with cost controls, have 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.
Sizeable Capex: Capex are expected to remain elevated over the next four years due to significant investments in FERC-regulated transmission projects. Forecasted transmission capex is more than $1 billion through 2018. Fitch expects NSTAR Electric to fund the capex in a manner that preserves its existing capital structure.
Fitch's key assumptions within the rating case for NSTAR Electric include:
--Annual electric sales growth averaging 0.0%-0.5% through 2018.
--O&M expense to remain relatively flat through 2018.
--Transmission capex totaling $1.024 billion over 2015-2018.
Positive: A positive rating action is not likely during the high capex cycle. Ratings upside is also restricted by the two-notch difference from the IDR of parent Eversource Energy ('BBB+'/Outlook Stable).
Negative: Given NSTAR Electric's strong position within its current rating category, a negative rating action is not expected. 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.
Liquidity is considered 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 (CP) program. As of Sept. 30, 2015, NSTAR Electric had $258.5 million in short-term borrowings, leaving $191.5 million of available capacity.
NSTAR Electric's utility operations require modest cash on hand, of which the company had $2.8 million unrestricted as of Sept. 30, 2015. Near term debt maturities are manageable, with $200 million of debentures maturing in May 2016 and $400 million of debentures maturing in November 2017.
Date of Relevant Rating Committee: Sept. 29, 2015.
Additional information is available on www.fitchratings.com.
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)