OREANDA-NEWS. Fitch Ratings has assigned a 'BBB+' rating to Oncor Electric Delivery Company LLC's (Oncor) \$350 million 2.95% senior secured notes due April 1, 2025 and \$375 million 3.75% senior secured notes due April 1, 2045. The Rating Outlook is Stable.

The net proceeds will be used by Oncor to repay borrowings under its revolving credit facility and for general corporate purposes. The notes are secured equally and ratably with the existing secured indebtedness.

Fitch last affirmed Oncor's Long-term Issuer Default Rating (IDR) at 'BBB' and short-term IDR at 'F3' after its indirect parent holding company, Energy Future Intermediate Holding Company LLC (EFIH), and its ultimate parent, Energy Future Holdings Corp. (EFH), along with other affiliated companies, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Neither Oncor nor Oncor Electric Delivery Holdings Company LLC (Oncor Holdings), which holds 80% ownership in Oncor, is part of the Chapter 11 filings.

KEY RATING DRIVERS
Effective Ring-fencing: Fitch continues to believe that Oncor is effectively ring-fenced and sees little risk of substantive consolidation during the bankruptcy proceedings of its indirect parent and affiliated entities. Fitch further expects Oncor to continue to operate under the regulatory debt cap of 60% that limits the dividend that can be paid to the parent.

Likely Change in Ownership: As part of the bankruptcy process, the bankruptcy judge has authorized a sale of EFH's indirect ownership stake in Oncor in a bidding process that is expected to culminate by mid-year. Fitch expects uncertainty to prevail until a successful bidder emerges, the bankruptcy court approves the bid, and the transaction closes after the required approval by the Public Utility Commission of Texas (PUCT). Oncor's Stable Outlook reflects Fitch's expectation that the PUCT will take steps to preserve the credit worthiness of Oncor, which could include a continuation of the ring-fencing structure.

Limited Financial Contagion Risk: Fitch does not expect any material financial impact on Oncor as a result of bankruptcy filings of EFH and EFIH. The largest financial exposure to Oncor was the pre-petition account receivables and other contractual obligations from Texas Competitive Electric Holdings Company LLC (TCEH), which totalled \$129 million. Oncor has since collected \$127 million of the pre-petition amount. Several other steps taken by management in the past have significantly reduced Oncor's exposure to its distressed parent and affiliates, which include elimination of notes receivable from TCEH and limiting Oncor's exposure to EFH's pension and other retiree benefits.

Adequate Liquidity: Oncor has adequate availability under the corporate revolver, which mitigates concerns regarding capital access in midst of bankruptcy proceedings for EFH/EFIH. Fitch forecasts internal cash generation at Oncor to be robust and sees only modest need for external debt over the next five years. As of Dec. 31, 2014, Oncor's corporate revolving facility, due October 2016, had borrowings of \$711 million and letter of credits outstanding of \$7 million. The drawn balances are large and reflect a high capex spend; Oncor typically draws on its corporate revolver to fund capital work in progress and subsequently replaces the drawn balances with permanent financing and/or internally generated funds. Oncor can request the lenders to increase the borrowing capacity of the revolver by \$100 million and to extend the maturity in two one-year increments. Under the terms of the corporate revolver, the lenders' commitments are several and not joint.

Strong Operational and financial Performance: Oncor continues to deliver strong operational and financial performance; the latter being driven by a combination of sales growth and significant transmission investments backed with constructive recovery mechanisms. Oncor's electric sales growth may falter from its robust trend given the slowdown in oil and gas drilling activity, which has spurred strong economic growth in Texas over the last few years. However, the Distribution Cost Recovery Factor (DCRF) available to Texas utilities per Senate Bill 1693 allows them to recover newly- incurred distribution capital costs on an interim basis, for a timely recovery of new investment. The DCRF rule allows a utility to change its rates between general rate cases (GRC), limited to one rate adjustment a year and not more than four times between two GRC applications. Oncor thus has the ability to recover its investments in a timely manner if electricity demand decline materially.

Oncor has been investing heavily in transmission infrastructure including spending for the Competitive Renewable Energy Zone (CREZ) projects. Various tracker mechanisms allow Oncor to earn a return on transmission related capital investment with minimal regulatory lag. Oncor is planning to spend more than \$5.5 billion over 2015 to 2018 in capex, of which approximately 45% will be transmission related. Fitch expects Oncor to earn close to its authorized return on equity (ROE) of 10.25% over this forecast period and has not assumed any distribution rate increases in its financial projections.

Robust Credit Metrics: Fitch expects Oncor's Earnings before Interest, Depreciation and Taxes (EBITDA) to Interest ratio to be consistently above 5.0x and Debt to EBITDA to be in the 3.3x - 3.7x range over 2015 - 2018, which is strong compared to a median financial profile for a low risk, regulated, 'BBB' issuer. Fitch expects Oncor's Funds Flow from Operations (FFO) metrics to moderate as benefits of bonus depreciation subside. Fitch expects FFO Adjusted Leverage to be in the 3.75x - 4.05x range, which is also robust for its rating category. Relative to its peers, Oncor's equity funding is limited and the utility has replenished equity capital through reductions in dividend distributions. Oncor has been curtailing upstream dividends since 2011 in order to maintain equity to capital ratio within the 40% cap given its large capital spending plans related to CREZ. As of Dec. 31, 2014, Oncor's regulatory capital structure was 58.8% debt and 41.2% equity.

KEY RATING ASSUMPTIONS
--Capex of \$5.5 billion between 2015-18;
--Volumetric sales growth of 0.5% - 1% per annum;
--O&M costs inflated at 3% annually;
--Continuation of the existing ring-fencing provisions.

RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to positive rating action include:

--Future positive rating actions are unlikely unless there is clarity on change of control of Oncor's indirect majority owner and the requirements of PUCT approval are known. Oncor's current and forecasted credit metrics are robust compared to the company's current rating level and the notching of the senior secured debt has been constrained to reflect ownership by a distressed parent.

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

--Any potential change in ownership of Oncor would need to be evaluated in context of any existing or new ring-fencing arrangements implemented to preserve the credit quality of the company.
--Fitch continues to believe that the ring-fencing measures for Oncor are strong, and the assets and liabilities of Oncor should not be consolidated in the bankruptcy proceedings of EFH. Any decision to the contrary could lead to ratings downgrade for Oncor.
--Any unexpected regulatory developments such as adverse outcomes in future rate cases could result in credit rating downgrades.