S&P Places TECO Energy's (TE) Ratings on CreditWatch Positive

Standard & Poor's Ratings Services today placed its 'BBB+' issuer credit ratings (ICRs) and senior unsecured debt ratings on Tampa, Fla.-based utility holding company TECO Energy (NYSE: TE) and subsidiaries Tampa Electric Co. and New Mexico Gas Co. on CreditWatch with positive implications. The 'A-2' short-term rating on Tampa Electric Co. is not on CreditWatch because we do not think the potential upgrade of the ICR is more than one notch.

"The placement on CreditWatch follows TECO's announcement that it has agreed to sell its TECO Coal properties and mining operations to Cambrian Coal Corp.," said Standard & Poor's credit analyst Todd Shipman.

The purchase price of $120 million might be augmented over the next five years by up to $50 million if coal prices increase over that time. The nominal purchase price will cause TECO to take a $65 million (after-tax) writedown off the value of TECO Coal on its books. TECO expects to close on the transaction by the end of 2014.

The positive CreditWatch listing reflects the potential for a one-notch upgrade following the sale, depending on the company's use of the net proceeds. TECO has stated its intention to apply the cash realized from the sale to pay down debt and other corporate purposes. In our view, the sale would strengthen TECO's business risk profile by removing the much more risky coal-mining activities from the business risk. Added risk comes from exposure to volatile coal prices, declining domestic usage, and operating challenges.

We do not expect TECO's leverage to change a lot as a result of the transaction, but reducing debt with a significant portion of sale proceeds would solidify the company's "significant" financial risk profile and help support higher ratings.

We will assess the sale process and TECO's plans regarding its use of the proceeds. We intend to resolve the CreditWatch listing around the closing of the transaction, which we expect by December 2014. At this time, we anticipate that a one-notch upgrade is likely.

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