Fitch Rates Northern States Power-Wisconsin's FMBs 'A+'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings rates Northern States Power Company-Wisconsin's (NSP-W) $100 million add-on issuance of 3.3% first mortgage bonds (FMBs) due June 15, 2024 'A+'. The FMBs rank pari passu with NSP-W's existing secured debt.

The Rating Outlook is Stable.

Net proceeds will be used for the repayment of short-term debt and other general corporate purposes.

KEY RATING DRIVERS

Supportive Regulatory Environment: NSP-W's ratings reflect the constructive regulatory framework in Wisconsin. Rate design mechanisms are supportive of credit quality, with above-average authorized returns on equity (ROEs), forward-looking test years, a purchased gas adjustment clause, and annual filings for fuel and purchased energy adjustments.

In December 2014, the Public Service Commission of Wisconsin (PSCW) issued its order increasing NSP-W's electric base rates by $14.2 million, representing 69% of the utility's initial request. New rates became effective January 2015 and were based on a 10.2% ROE and a 52.54% common equity ratio.

Elevated Capex: Fitch's main rating concern relates to the relatively sizeable capital spending program over the forecast period. NSP-W plans to spend a total of $1.44 billion in capex over 2015-2019, significantly higher than historical norms. Capex is primarily earmarked for transmission spending, including NSP-W's Wisconsin portion of the CapX2020 transmission project.

Stable Credit Metrics: For the LTM ended March 31, 2015, FFO fixed charge coverage stood at 6.9x, FFO lease-adjusted leverage at 3.1x, and adjusted debt/EBITDAR at 3.0x. Over the 2015-2017 timeframe, Fitch forecasts FFO fixed charge coverage to average 6.0x, FFO lease-adjusted leverage to average 3.5x, and adjusted debt/EBITDAR to average 3.3x. The forecasted metrics reflect capex continuing to increase through the 2019.

Fitch expects NSP-W to fund capex in a manner that is consistent with its authorized regulatory capital structure (52.54% common equity ratio), with a mix of internally generated funds, long-term debt issuances, and parent equity infusions. Fitch views the parent support as a credit positive for NSP-W.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for NSP-W include:

--Electricity sales growth averaging 0.5%;

--O&M expense growing at 3%;

--Rate case outcomes consistent with historical rate orders.

RATING SENSITIVITIES

Positive: Given the already strong rating and an elevated capex program, a positive rating action is unlikely in the near term.

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

--A deterioration of the Wisconsin regulatory environment;

--Adjusted debt/EBITDAR weakening to 3.75x; and

--A shift in management strategy that results in weaker financial support from parent Xcel Energy, Inc. (XEL).

LIQUIDITY

NSP-W has adequate liquidity and meets its short-term obligations primarily through the issuance of commercial paper under its $150 million bank credit facility, which expires in October 2019. At March 31, 2015, NSP-W had $70 million available under its credit facility. There are no long-term debt maturities prior to 2018, when $150 million becomes due.

Date of Relevant Rating Committee: April 21, 2015

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

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

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

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150625005988/en/

Fitch Ratings
Primary Analyst
Kevin L. Beicke, CFA
Director
+1-212-908-0618
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Philippe Beard
Director
+1-212-908-0242
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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