Fitch Rates Wisconsin Public Service Corp.'s $250MM Sr. Unsecured Notes 'A+'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A+' rating to Wisconsin Public Service Corp. (WPS) new 1.650% $250 million issuance of senior unsecured notes due Dec. 4, 2018. The new notes will rank equally with WPS' existing senior unsecured obligations. Net proceeds will be used to repay short-term debt and long-term debt that matures on Dec. 1, 2015, and for working capital and other corporate purposes.

KEY RATING DRIVERS

Restrictive Rate Outcome: The rate decisions in WPS' electric and gas rate cases are below what Fitch had initially anticipated and will stress the utility's financial performance over 2016-2017. WPS received rate reductions of $7 million and $6 million for its electric and gas businesses, respectively. The order reflects a 2016 forward test year and a 10% authorized return on equity (ROE), which is below the 10.2% accorded in WPS' previous rate case and in recent Wisconsin peer utilities' rate cases.

Fitch had assumed rate relief that was closer to WPS' revised request for rate increases of $48 million (electric) and $4.4 million (gas). Fitch expects credit metrics to weaken by roughly half-a-turn over the next two years before bouncing back in the back-end of the forecast, assuming constructive regulatory treatment.

On a positive note, robust credit metrics on a latest 12 months (LTM) basis do provide some level of cushion to absorb the negative financial effect of the rate order. Funds from operations (FFO)-adjusted leverage and adjusted debt/EBITDAR were 3.2x and 3.4x, respectively. EBITDAR and FFO coverage ratios were both 6x.

The main drivers of the electric rate request included the recovery of environmental capex associated with the coal-fired Weston 3 plant and upgrades to Fox Energy Center units 1 and 2. The request also related to increased transmission costs allocated from ATC and MISO. Drivers of the gas rate request included recovery of spent capex and an increase in non-fuel O&M costs.

A final written order from the Public Service Commission of Wisconsin is expected in December 2015 with new rates effective Jan. 1, 2016.

Elevated Capex: The utility is spending approximately $345 million over 2013-2016 to install emission-control equipment at the coal-fired Weston 3 plant. Management projects to complete the project in early 2016. In addition, WPS plans on spending approximately $220 million over 2014-2018 as part of the System Modernization and Reliability Project.

In the context of merger provisions, WPS and its sister utility affiliate Wisconsin Electric Power Co. filed before the Public Service Commission of Wisconsin a joint integrated resource plan (IRP) for the utilities combined loads to evaluate the need for new generation capacity. As a result, WPS withdrew its application for a previously proposed $517 million 400 MW combined cycle plant at the Fox Energy site, and capacity needs will be reviewed in the context of the joint IRP.

Pressured Credit Metrics: Fitch expects FFO-adjusted leverage to range between 4.5x-5x in 2016-2017, and improve to near 4x in 2018. Adjusted debt/EBITDAR is projected to approximate 4x over 2016-2017 and improve to 3.6x in 2018, assuming rate relief and cost control. The FFO-based metrics also reflect the negative cash flow effect from the expiration of bonus depreciation in 2014.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case include:

--Additional rate relief over 2017-2019;

--Retail sales growth of 0.5% annually;

--$1.4 billion of capex over 2015-2019.

RATING SENSITIVITIES

Future developments that may, individually or collectively, lead to a positive rating action:

Given current rating levels and declining headroom in credit metrics, positive rating actions are unlikely in the near term.

Future developments that may, individually or collectively, lead to a negative rating action:

--A series of unfavourable rate orders

--Debt/EBITDAR over 4.0x on a sustained basis.

LIQUIDITY

WPS has access to a combined capacity of $250 million under two separate unsecured revolving credit facilities that mature in June 2017 and May 2019. WPS had $102.1 million of commercial paper borrowings and $2.9 million of cash and cash equivalents at Sept. 30, 2015.

Date of Relevant Rating Committee: Nov. 11, 2015.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Recovery Ratings and Notching Criteria for Utilities (pub. 05 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863298

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995747

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151201006858/en/

Fitch Ratings
Primary Analyst
Philippe Beard
Director
+1-212-908-0242
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Shalini Mahajan
Senior Director
+1-212-908-0351
or
Committee Chairperson
Philip W. Smyth, CFA
Senior Director
+1-212-908-0531
or
Media Relations
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• IBM tumbles on soft Q1 revenue; announces HashiCorp $6.4bn acquisition
• HashiCorp Inc (HCP) PT Raised to $35 at Piper Sandler
• Gatos Silver Reports South-East Deeps Drilling Results at Cerro Los Gatos and Announces Executive Appointment