OREANDA-NEWS. Fitch Affirms Ameren & Subs; Outlook Stable New York Fitch Ratings has affirmed the 'BBB+' Long-Term Issuer Default Ratings (IDRs) of Ameren Corp. (AEE) and its regulated utility subsidiaries Union Electric Company (UE) and Ameren Illinois Company (AIC). The Rating Outlook is Stable for all three entities. A full list of ratings is shown at the end of this release.

KEY RATING DRIVERS

Low-Risk Business Model: AEE's credit profile reflects the relatively stable and predictable operating cash flows of its regulated utility subsidiaries and the financial support it receives from them in the form of dividends for the payment of corporate expenses and dividends to common shareholders. The utilities operate under regulatory frameworks that provide for recovery of fuel and purchased power expenses, minimizing commodity price exposure. The ownership of a FERC-regulated transmission business, Ameren Transmission Company of Illinois (ATXI), provides further uplift to AEE's financial profile, as management projects healthy rate base growth in the business over the next few years. The Stable Outlook reflects Fitch's expectation that AEE will sustain its current financial condition, its strong liquidity position, and a conservative financing strategy to support a projected 6.5% compound annual growth rate in rate base through 2020.

Rising but Manageable Capex: AEE's projected capex program is significantly higher than its historical norm over the next five years. Forecast capex ranges between $10.64 billion and $11.54 billion over 2016-2020, compared with approximately $7.02 billion over the previous five years. Fitch expects AEE to finance capex with a balanced mix of internally generated cash flow and long-term debt issuances. Management targets an approximate 50% debt-to-equity capital structure. Fitch estimates internal cash flows to fund approximately 70% of consolidated capex over the next three years.

FERC Transmission Investments: Planned capex includes about $3 billion of FERC-regulated transmission investments, including $1 billion at ATXI with the construction of three MISO multi-value projects. Fitch estimates ATXI will contribute approximately 9% of consolidated operating cash flows by 2018. FERC's credit-supportive rate design provides for timely recovery of capital investments via annual rate reconciliations and permits inclusion of construction work in progress (CWIP) in rate base which supports cash flow during the construction phase. FERC rates are based on a healthy 56% equity component in the capital structure and a currently attractive 12.38% return on equity (ROE) for MISO projects.

Transmission Rate Challenge: The 12.38% MISO ROE is the subject of two FERC complaint proceedings with decisions for both expected in 2016-2017. Based on the outcome of similar rate challenges, Fitch does not expect a reduction to the transmission ROE to have a material effect on AEE's or AIC's earnings or cash flow. Management estimates a 50 bps ROE reduction would reduce consolidated earnings by approximately $6 million in 2016. As of 1Q16, AEE had recorded a regulatory liability of $55 million associated with potential refunds to customers.

Stable Credit Metrics: Tariff increases at the utilities, continued cost control and incremental earnings stemming from transmission investments should continue to support a stable credit profile through the forecast period. Fitch forecasts adjusted debt-to-EBITDAR and FFO lease-adjusted leverage to average 3.8x and 3.6x, respectively, over 2016 - 2018. FFO-based metrics include the positive effect of sizeable tax benefits stemming from AEE's prior ownership of the merchant business and previous capital investments.

Financial Flexibility: Operating cash flows are enhanced by the availability of approximately $630 million of consolidated tax benefits at Dec. 31, 2015, including approximately $430 million at AEE, which management expects to be realized into 2021. AEE's financial flexibility also benefits from low leverage with parent debt representing approximately 10% of consolidated debt as of 1Q16 and modest equity support needed by its utility subsidiaries. Fitch expects available cash and parent debt to fund ATXI in the near term. Fitch anticipates management may issue long-term debt at ATXI at the back end of the forecast.

UE

Sound Credit Metrics: UE's credit profile is well positioned within the current rating level. Fitch forecasts adjusted debt/EBITDAR, FFO lease-adjusted leverage, and FFO fixed-charge coverage to average 3.4x, 3.2x, and 5.1x, respectively, over 2016-2018. For the LTM ended March 31, 2016, adjusted debt/EBITDAR, FFO lease-adjusted leverage and FFO fixed-charge coverage were 3.4x, 2.8x, and 6x, respectively. Projected credit metrics assume a balanced rate decision in the pending rate case and UE's continued implementation of cost control.

Challenging Regulatory Environment: Regulatory lag due to the use of an historical test year in setting rates, the absence of CWIP in rate base, and an extended review period, remains a credit concern. Actions taken by the Missouri Public Service Commission (MPSC) in UE's last rate order were not considered to be credit supportive by Fitch as the MPSC excluded the recovery of substantially all changes in transmission costs through UE's fuel adjustment clause and terminated the use of trackers for vegetation management, infrastructure inspection costs, and storm costs. The MPSC recently opened a proceeding to facilitate discussions on possible policies to improve regulation of investor-owned utilities.

Pending Rate Case: UE is seeking a $206 million rate increase based on a 9.9% ROE and a 51.8% common equity ratio with new rates to become effective in late May 2017. Fitch has assumed a rate decision that is in line with UE's last rate order in which the utility was granted slightly over 60% of its updated rate request. The rate request includes $74 million that is primarily related to nearly $1.4 billion of capex that has been placed into service since the true-up date of the last rate case. A less than favorable rate decision would indicate a more permanent deterioration of the regulatory construct and would be credit negative.

Noranda Lost Sales: Management expects the lost sales from the idling of operations at Noranda Aluminium (Noranda), UE's largest industrial customer, to reduce earnings by approximately $40 million in 2016. To mitigate any long-term financial impact, UE is requesting, as part of the pending filing, the amortization over 10 years of an estimated $81 million of lost fixed-cost recovery due to lower sales volumes from Noranda during the period April 2015 through May 2017. Fitch's forecast assumes UE will receive adequate rate treatment for the loss of Noranda sales volumes in the pending rate case.

Manageable Capex Program: Management estimates capex to range from $3.93 billion to $4.25 billion over 2016-2020, which equates to approximately 2% in annual rate base growth. By contrast, UE spent $3.16 billion over 2011-2015. Capital spending is earmarked primarily toward the maintenance and upgrade of UE's generation, transmission and distribution systems. Fitch expects UE to fund capex using a balanced mix of internally generated cash flows and long-term debt issuances, and manage to its authorized regulatory capital structure.