Unitil Corporation (UTL) Assigned 'BBB+' Rating by S&P

Standard & Poor's Ratings Services today assigned its 'BBB+' issuer credit rating to Unitil Corp. (NYSE: UTL) and its subsidiaries, Fitchburg Gas & Electric Light Co, Northern Utilities Inc., and Unitil Energy Systems Inc. The outlook is stable.

"We base our ratings on Unitil on its consolidated group credit profile, which includes a strong business risk profile and a significant financial risk profile," said Standard & Poor's credit analyst Matthew O'Neill.

Unitil is an electric and natural gas utility holding company that owns utility subsidiaries Fitchburg Gas & Electric Light Co, Northern Utilities Inc., and Unitil Energy Systems Inc.; Granite State Gas Transmission (not rated), an 86-mile natural gas transmission pipeline in Maine and New Hampshire, whose primary customer is Northern Utilities Inc.; and Usource LLC, which is a small energy brokering and management company that brings together buyers and sellers of energy for a fee. The Usource business bears no commodity risk and makes up only about 2% of consolidated EBITDA; we view this business as having much higher risk than its regulated utilities but view its small size, prudent strategy, and lack of commodity risk as significant mitigating factors.

Overall, we assess Unitil's business risk profile as strong, which incorporates our "very low" industry risk assessment of the regulated utility industry and a "very low" country risk assessment based on the company's sole focus on U.S. operations and markets. We view the company's competitive position as "satisfactory," which reflects the company's small scale compared with peers, limited geographic diversity, and unregulated operations. The satisfactory competitive position also reflects the company's low-risk electric and gas distribution operations and stable customer base, which is
mostly residential and commercial. The company operates in credit supportive regulatory environments, with constructive cost-recovery mechanisms, and decoupling.

Unitil serves approximately 180,000 electric and gas customers in Maine, Massachusetts, and New Hampshire through its three operating subsidiaries. The company's rates are regulated by the Maine Public Utilities Commission, the Massachusetts Department of Public Utility, and the New Hampshire Public Utilities Commission.

The stable rating outlook on Unitil Corp. reflects our expectation that the company will continue to effectively manage regulatory risk, including the use of enhanced cost-recovery mechanisms that support credit quality, and remain focused on expanding the regulated electric and natural gas distribution operations and be able to recover its costs on timely basis. Under our base case scenario, we expect that Unitil Corp. will generate core ratios that will be in the upper end of the significant financial risk profile, with FFO to debt of 20% to 22% and debt to EBITDA of 3.5-4.0x.

We could raise the ratings if the company maintains its focus primarily on expanding its utility operations and its financial risk assessment improves. Specifically, FFO to total debt would need to consistently exceed 23% to merit a change in the financial risk assessment and an upgrade. This could occur through higher cash flow generation resulting from increased sales or lower operating costs or if regulatory cost recovery gets further support through regulatory proceedings. Although unlikely, debt reduction could strengthen FFO to total debt.

We could lower the ratings if financial measures weakened below our expectations so that FFO to total debt is below 16% on a sustained basis, which could cause us to revise our positive comparable rating analysis, based on the narrow focus and small scale of the company. This could occur if the utility does not receive sufficient and timely cost recovery through the regulatory process, if sales volumes decline significantly, or if there are additional material costs associated with operating as a stand-alone business. Also, we could lower the ratings if the utility changes its current utility
strategy and materially expands its unregulated higher risk operations.

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