Fitch Affirms MDU Resources, Centennial Energy and Cascade; Outlooks Stable
KEY RATING DRIVERS
MDU Resources
MDU's rating reflects the benefit of MDU's diverse business mix, low leverage and plans to divest its upstream operations. It also considers the stable operating performance and low risk business profile of MDU's portfolio of regulated utilities which serve parts of eight contiguous states from Minnesota to Washington. The tariff mechanisms at the utilities generally provide for full recovery of commodity and purchased power costs that minimize cash flow volatility.
Primary concerns are MDU's economically sensitive construction materials and construction services businesses which have been generating strong results. Concerns also include the execution of the sale of the upstream segment.
MDU's consolidated leverage defined as debt to EBITDA was 2.7x for the LTM ending March 31, 2015, up from 2.4x at the end of 2014. The increase in leverage is attributed to lower EBITDA which fell 9% in the LTM versus 2014. With the MDU's upstream operations now discontinued, Fitch expects EBITDA to decline in 2015 and leverage is expected to be in the range of 2.75 - 3.0x by yearend.
For the LTM, capital expenditures were \$982 million, close to the \$972 million spent in 2014. Spending is expected to remain significant going forward even with the sale of the exploration and production segment (which accounted for 37% of 2014's capex budget). Between 2015 and 2019, MDU intends to spend \$3.9 billion for the utilities, pipeline and construction businesses for capex and acquisitions (net of proceeds from asset disposals), up significantly from spending of \$1.9 billion in the prior five years.
Cascade
Cascade's ratings take into consideration the utility's regulated cash flows, supportive regulatory environment, strong stand-alone credit metrics, adequate liquidity position that is supported by MDU, and manageable capital spending and external funding requirements.
Concerns for Cascade are modest and include volume sensitivity to weather in the absence of a weatherization clause in Washington where it receives approximately 70% of its operating margin.
As of March 31, 2015, Cascade had \$48 million of availability on its \$50 million revolver which matures in 2018.
Cascade is significantly insulated from MDU's other regulated and nonregulated businesses through ring-fencing. Ring-fencing mechanisms include no Cascade guarantees or cross default provisions within debt agreements at other MDU entities which could impact Cascade, and a prohibition on intercompany loans.
Centennial
Fitch considers the ratings for Centennial apart from those of MDU. The ratings for Centennial are supported by its strong financial profile and diverse mix of businesses, including midstream and construction.
Concerns for Centennial also center around the economically sensitive construction materials and construction services businesses which have been generating strong results. Concerns also include the execution of the sale of the upstream segment.
Centennial's stand-alone credit metrics remain healthy. Its financial profile benefits from a modest financial leverage position with debt to total capitalization managed around 30% to 35%. As of March 31, 2015, Centennial had \$315 million of availability on its \$650 million revolver which matures in 2017.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
--The upstream operations are sold and the transaction closes in 4Q15/1Q16;
--EBITDA margins fall to approximately 13.5% following the sale of the upstream segment;
--Modest dividend growth continues;
--Capex averages over \$800 million a year over the next few years.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Favorable rating action is not viewed as likely on any of the issuers. However, if leverage falls below 2.5x on a sustained basis while there is an increased focus on regulated operations, positive rating action could occur at MDU and Centennial.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--Leverage at MDU in excess of 3.0x on a sustained basis. This is above the prior trigger and considers the company's pending sale of upstream assets which reduces risk to the credit profile.
--An inability to sell or a departure from the strategy to dispose the upstream business coupled with leverage above 2.5x on a sustained basis.
LIQUIDITY
MDU's liquidity appears sufficient for its funding requirements. As of March 31, 2015, MDU had \$122 million of cash on the balance sheet and availability on its four revolvers was \$558 million. Both MDU and Centennial maintain commercial paper programs backed by revolvers. MDU's own revolver is for \$175 million and matures in 2019. Cascade's \$50 million revolver expires in 2018. Intermountain's \$65 million revolver matures in 2018. Centennial's \$650 million revolver expires in 2019. All four bank agreements restrict the debt to capital ratio from exceeding 65%.
FULL LIST OF RATING ACTIONS
Fitch affirms the following:
MDU Resources Group, Inc.
--Long-term IDR at 'BBB+';
--Short-term IDR and commercial paper (CP) at 'F2';
--Senior unsecured at 'A-';
--Preferred stock at 'BBB'.
Cascade Natural Gas Corporation
--Long-term IDR at 'A-';
--Short-term IDR at 'F2';
--Senior unsecured at 'A'.
Centennial Energy Holdings, Inc.
--Long-term IDR at 'BBB';
--Short-term IDR and CP at 'F2';
--Senior unsecured at 'BBB'.
Комментарии