OREANDA-NEWS. S&P Global Ratings today affirmed its ratings, including the 'BBB+' issuer credit rating, on Oncor Electric Delivery Co. (Oncor) and revised the outlook to positive from developing to reflect the potential for higher issuer ratings as a result of the company's proposed acquisition by NextEra.

Upon the completion of the acquisition by NextEra, Oncor will no longer be burdened by issues and complications arising from the bankruptcy of its current majority owner, EFH. While the ratings on Oncor are de-linked from the majority owner, we still view the company's credit profile as being somewhat constrained by the presence of EFH, relative to peers. "The positive outlook reflects the potential for higher ratings on Oncor over the next 12 to 18 months, once the company is unaffiliated with a majority owner that is in bankruptcy," said S&P Global Ratings credit analyst Dimitri Nikas.

While we could raise the issuer credit rating on Oncor by up to one notch upon the completion of the acquisition by NextEra, we would expect to affirm the ratings on the company's first mortgage bonds given the guidelines for notching utility senior secured debt.

The ratings on Oncor reflect the company's excellent business and significant financial risk profiles. Oncor's business risk profile benefits from a large service territory that demonstrates robust customer growth, a generally constructive regulatory framework, and low-risk electricity transmission and distribution operations. Over the past several years Oncor has been growing its electric transmission rate base which benefits from timely investment recovery.

Oncor's financial risk profile is in the significant category and under our base-case scenario we expect that cash flow generation will benefit mainly from customer and load growth and ongoing recovery of transmission investments. We expect that funds from operations (FFO) to debt will range from 17%-18% while debt to EBITDA will be about 4x.

The positive outlook on Oncor reflects the potential for higher ratings over the next 12 to 18 months once the acquisition by NextEra is completed. Completion of the transaction would disassociate Oncor from EFH and as a result we could raise the issuer credit rating by one notch.

We could affirm the issuer credit ratings on Oncor and revise the outlook to developing if the proposed merger with NextEra is not completed and Oncor remains entangled in the EFH bankruptcy proceeding.

We could raise the issuer credit rating on Oncor if the proposed acquisition by to NextEra is completed over the next 12 to 18 months and our ratings on NextEra are unaffected by the transaction. We could also raise the rating if Oncor retains a degree of insulation after the sale, depending on the ratings of the rest of the group.