OREANDA-NEWS. Fitch Ratings has affirmed the ratings of American Transmission Co. LLC (ATC), including the long-term Issuer Default Rating (IDR) at 'A' and the short-term IDR at 'F1'. The Rating Outlook is Stable. A detailed list of ratings is provided at the end of this release.

The rating affirmation and Stable Outlook reflect ATC's low business risk profile, underpinned by supportive regulation and predictable earnings. The rating affirmation takes into consideration the pending complaint to reduce the Federal Energy Regulatory Commission (FERC) approved return on equity (ROE) in the Midcontinent Independent System Operator (MISO) region. Fitch's base case scenario assumes an 110bp reduction in ROE to 11.1%. The combination of a lower ROE and a period of elevated capital investments will modestly weaken ATC's credit metrics over the 2015-2017 period, but this downward pressure is offset by ATC's commitment to a debt-to-capital ratio of less than 55% and ready access to equity infusions, when needed.

KEY RATING DRIVERS
Supportive Regulatory Framework: ATC operates under a FERC- approved tariff structure that ensures cash flow stability with automatic annual updates to forward-looking rates, subject to an annual true-up; allowance for construction work in progress and pre-certification costs; and a 12.2% ROE using a 50%/50% debt-to-equity capital structure. ATC's business model entails no material volume, commodity or weather sensitivity.

Potential Revision to the Rate Structure: Fitch is monitoring the complaint filings by several industrial customer groups at the FERC regarding transmission ROEs in the MISO region. MISO, ATC and other MISO transmission owners were named as respondents in complaint filings that allege transmission rates are no longer just and reasonable. FERC has denied parts of the complaint related to capital structures and incentive ROE adders but indicated that ROE should be set using a two-step discounted cash flow methodology. An administrative law judge recommendation is expected in November 2015 followed by a FERC ruling anticipated in mid-2016. Fitch calculates that every potential 50bps reduction in ROE would negatively affect EBITDAR by about $12 million. Fitch's base case scenario assumes an 110bp reduction in the authorized ROE to 11.1%, representing a reduction in base ROE to 10.6% plus an approved 50bp ROE adder for participating in MISO.

Large Capex Program: With numerous transmission projects underway, ATC plans to spend about $350 million on capex in 2015, followed by more than $500 million annually in 2016-2017. Bay Lake and Badger-Coulee, two of the larger projects over the coming years, are progressing on time and budget, with expected in service dates ranging from 2016 to 2019. ATC has relied on a mix of debt and equity to fund its free cash flow shortfall in recent years, so as to maintain a debt-to-capital ratio inside of its 55% maximum. Furthermore, ATC's rate structure allows for contemporaneous returns on investments, which lessens the pressure from the elevated investments on the balance sheet.

Pressured Credit Metrics: The combination of a lower approved ROE and elevated capital expenditures will pressure ATC's credit metrics with adjusted debt/EBITDAR projected to slip to 4.4x in 2015-2017 before rebounding modestly in 2018 as capex plans moderate. While these credit metrics are elevated for an 'A' rated issuer, Fitch recognises ATC's exceptionally predictable earning profile and its ability to delever during periods of lower capex spend.

Change of Ownership Structure: WEC Energy Group, Inc (WEC; IDR 'BBB+') holds a 60% economic interest in ATC following its acquisition of Integrys Energy group Inc. However, WEC does not exercise control since its voting interest is capped at 34% for most matters. Thus, in Fitch's opinion, the credit profiles and ratings ATC and WEC remain independent.

KEY ASSUMPTIONS
Fitch's expectations are based on the agency's internally produced, conservative rating case forecasts. They do not represent the forecasts of rated issuers individually or in aggregate. Key Fitch forecast assumptions include:

--Authorized ROE of 11.1%, including adder, effective Jan. 1, 2015;
--Operating expenses growing by 3% annually;
--Capital expenditures of $350 million in 2015, rising to slightly more than $500 million annually in 2016 and 2017;
--Cash shortfall funded with a mix of debt and equity contributions to maintain a debt-to-capitalization ratio below 55%.

RATING SENSITIVITIES
Positive Rating Sensitivities:
A positive rating action is unlikely at this time given the uncertainty surrounding the FERC-approved ROE going forward. The ratings assume authorized ROE will remain at least 11%, including adders.

Negative Rating Sensitivities:
A reduction in the FERC-authorized ROE and/or other actions resulting in adjusted debt/EBITDAR leverage metrics exceeding 4.3x for a sustained period could lead to a downgrade. Fitch estimates that an authorized ROE of mid-10% or lower could result in a downgrade, absent any offsetting factor.

LIQUIDITY

Adequate Liquidity Position: Fitch views ATC's liquidity position as sufficient, based upon $249 million availability under its $400 million revolving credit facility as of June 30, 2015. The credit facility, recently extended to June 2020, provides backstop support for the company's commercial paper program. As of June 30, 2015, ATC had $151 million of commercial paper outstanding and no borrowings under its credit facility.

Extended Debt Maturity Profile: Financing activities in December 2014 and April 2015 improved ATC's debt maturity profile, with a total of $250 million of 10-year to 30-year senior notes refinancing short-term borrowings and upcoming debt maturities. ATC's debt maturity schedule is light over the next five years, with $200 million of senior notes due in 2018 and $150 million due in 2019.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

ATC
--Long-term IDR at 'A';
--Senior unsecured debt at 'A+';
--Short-term IDR at 'F1';
--Commercial Paper Program at 'F1'.