Fitch Affirms Lincoln Electric System, NE's CP Program at 'F1+'
OREANDA-NEWS. Fitch Ratings has affirmed the following city of Lincoln, NE Lincoln Electric System's (LES) ratings:
--$150 million electric system revenue commercial paper (CP) note program at 'F1+';
--$150 million electric system revenue CP bank note at 'AA'.
SECURITY
The CP notes are secured by a pledge of system net revenues, subject solely to the prior payment of LES's long-term debt. The rating on the bank note, which is a promissory note evidencing LES's obligation to the Bank of Tokyo-Mitsubishi UFJ, Ltd. (IDRs of 'A/F1') for any draws made on a $150 million revolving liquidity facility, is based on LES's long-term rating.
KEY RATING DRIVERS
SUFFICIENT LIQUIDITY AND STRONG LONG-TERM RATING: The 'F1+' rating on the CP note program reflects LES's sufficient internal liquidity sources, including a $150 million revolving credit facility, as well as its strong 'AA' long-term rating and Stable Outlook. LES's available liquidity consistently exceeds Fitch's 1.25x coverage threshold.
SOLID LONG-TERM CREDIT CHARACTERISTICS: LES's healthy service territory and considerable rate flexibility underpin its strong long-term credit rating. Stable cash flow metrics evidence LES's overall strong financial position and management, which includes extensive risk management and planning. Debt service coverage has remained nearly unchanged at an average of slightly more than 2x annually over the past five years.
RATING SENSITIVITIES
TIGHTER LIQUIDITY: While its minimum liquidity thresholds make it unlikely, any sustained compression in LES's coverage ratio below the 1.25x level could ultimately lead to negative rating action on the CP note program.
CREDIT PROFILE
LES's strong long-term credit characteristics, coupled with its available liquidity sources, support the 'F1+' rating on its $150 million CP program. The program has been an inexpensive source of interim financing of capital projects, reflecting, in part, LES's credit quality. The program currently has $54.5 million of available capacity.
Liquidity sources include a $150 million revolving liquidity facility provided by the Bank of Tokyo-Mitsubishi UFJ, Ltd., as well as the system's own cash and investments. A bank note obligates LES for the full repayment of any draws on the credit facility. LES also maintains a $50 million revolving credit agreement with Wells Fargo Bank, N.A.
Total available sources provided 2.2x coverage of the maximum borrowable amount of CP at Jan. 31, 2016. This comfortably exceeded Fitch's expected metric of 1.25x the maximum program size for the 'F1+' rating.
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