Fitch Rates NYSEG's Senior Unsecured Notes 'A-'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A-' rating to New York State Electric & Gas Corporation's (NYSEG) issuance of senior unsecured notes. The 10-year notes mature Dec. 1, 2026 and rank pari passu with NYSEG's existing unsecured debt.

Net proceeds will be used to refinance NYSEG's $100 million 5.65% senior notes due Dec. 15, 2016, to redeem $96.85 million of NYSEG's auction rate pollution control obligations on Dec. 19, 2016, to pay down notes payable to affiliates and for general corporate purposes.

KEY RATING DRIVERS

Low-Risk Business Profile

The ratings of NYSEG primarily reflect the low-risk business profile and stable cash flow of the utility's regulated electric transmission and distribution and natural gas distribution operations. NYSEG has no commodity exposure and benefits from a decoupling mechanism that eliminates the impact of weather and usage patterns on its electric and natural gas revenues.

Moderately Balanced Regulatory Environment

The New York Public Service Commission's (NYPSC) regulatory framework includes ratemaking features such as revenue decoupling, a commodity pass-through mechanism and use of a forward-looking test year, which help maintain NYSEG's stable financial profile. However, NYSEG's 9% authorized return on equity is among the lowest in the U.S.

Supportive Financial Metrics

NYSEG's financial metrics should remain supportive of the ratings, with a modest revenue increase provided by the three-year rate plan that became effective May 1, 2016. Fitch expects adjusted debt/EBITDAR to average around 3.2x-3.5x through 2018, with funds flow from operations (FFO) fixed-charge coverage averaging around 5.5x-6.0x and FFO adjusted leverage averaging around 3.6x-3.9x.

Strong Regulatory Ring-Fencing Measures

The NYPSC regulatory ring-fencing measures imposed through an October 2013 regulatory order are positive for NYSEG's credit-risk profile. The ring-fencing measures include a minimum equity to capital ratio, a limit on dividend distributions under certain circumstances and the maintenance of an investment grade rating for its lowest-rated debt.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for parent AVANGRID, Inc. ('BBB+'/Outlook Stable) include:

--Rate base growth of $3.4 billion from 2014 to 2020;

--Total capex of $9.6 billion over 2016-2020, with $6.7 billion of that at the regulated utilities and $2.8 billion at the renewable energy business;

--EBITDA compound annual growth rate (CAGR; 2014-2020) of 5%-7%;

--Net income CAGR (2014-2020) of 8%-10%;

--Dividend payout ratio of 65%-75%.

RATING SENSITIVITIES

Positive Rating Action: A ratings upgrade could occur if adjusted debt/EBITDAR were expected to decrease to less than 3.0x and FFO fixed-charge coverage were expected to exceed 6.0x on a sustained basis.

Negative Rating Action: A ratings downgrade could occur if adjusted debt/EBITDAR were expected to exceed 4x on a sustained basis. An adverse regulatory decision that meaningfully reduces the stability and predictability of earnings and cash flow could also result in a negative rating action.

LIQUIDITY

Fitch considers NYSEG's liquidity to be adequate.

NYSEG, parent AVANGRID, and NYSEG's sister utilities - Central Maine Power Company (CMP, 'BBB+'/Outlook Stable), Rochester Gas and Electric Corporation (RGE, 'BBB+'/Outlook Stable), The United Illuminating Company (UI, 'BBB+'/Outlook Stable), Connecticut Natural Gas Corporation (CNG, 'A-'/Outlook Stable), The Southern Connecticut Gas Company (SCG, 'BBB+'/Outlook Stable), and The Berkshire Gas Company (BGC, 'A-'/Outlook Stable) - participate in a joint $1.5 billion revolving credit facility that matures April 5, 2021.

The credit facility supports AVANGRID's $1 billion CP program, which AVANGRID uses to provide its subsidiaries with intercompany loans. The credit facility contains maximum sublimits of $1 billion for AVANGRID at the parent level, $250 million for each of NYSEG, CMP, RGE, and UI, $150 million for each of CNG and SCG, and $25 million for BGC.

NYSEG's long-term debt maturities over the next five years are manageable, with $200 million maturing in December 2017 and $200 million maturing in 2020.

Disclosure: There were no financial statement adjustments made that were material to the rating rationale outlined above.

Date of Relevant Rating Committee: April 22, 2016.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015)

https://www.fitchratings.com/site/re/869362

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers - Effective from 7 April 2016 to 21 November 2016 (pub. 05 Apr 2016)

https://www.fitchratings.com/site/re/879564

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015128

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

View source version on businesswire.com: http://www.businesswire.com/news/home/20161121005962/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
Rob Hornick
Senior Director
+1-212-908-0523
or
Committee Chairperson
Shalini Mahajan, CFA
Managing Director
+1-212-908-0351
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]

Source: Fitch Ratings

---

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

---

You May Also Be Interested In

• Jefferies upgrades Shopify to Buy on AI commerce tailwinds, sees 30% upside
• Sanuwave Q2 2026 revenue tops revised guidance range
• Shutterstock CEO Paul Hennessy steps down; CFO named interim chief