[September 14, 2012] Fitch Rates Public Service Electric and Gas' Medium-Term Notes 'A+'; Outlook Stable Tweet Sep 14, 2012 (Close-Up Media via COMTEX) -- Fitch Ratings has assigned an 'A+' rating to Public Service Electric and Gas Company's (PSE&G) $350 million issuance of medium-term notes (MTNs). The 3.65 percent, 30-year secured MTNs, series H, rank pari passu to PSE&G's other secured debt and will mature on Sept. 1, 2042. The Rating Outlook is Stable. Proceeds from the issuance will be used for general corporate purposes. The issuance is expected to close Sept. 13. Key Rating Factors: --A constructive regulatory environment in New Jersey; --Strong growth from transmission and other infrastructure projects; --Robust financial metrics. Constructive Regulatory Environment: PSE&G's ratings largely reflect the balanced regulatory oversight of the New Jersey Board of Public Utilities (BPU). The BPU permits PSE&G to use several regulatory mechanisms to recover costs in a timely manner, and also authorized in 2010 a weather normalization clause at the natural gas utility. These regulatory mechanisms enhance the predictability of utility cash flows by mitigating the effect of exogenous factors. Fitch does not expect the need for PSE&G to file another rate case during the next few years, given the recent 2010 rate case and the likelihood of the utility being able to continue to earn its authorized 10.3 percent rate of return on equity. Growth Capital Spending: PSE&G is undergoing a relatively large capital spending program over the next few years. However, the spending is primarily on BPU-authorized infrastructure projects and FERC-regulated transmission projects, both of which include timely recovery of costs and attractive returns. Strong Financial Metrics: The utility's recent infrastructure projects and expected strong EBITDA growth from transmission projects in progress that earn a FERC formula rate return will significantly diversify the utility's future cash flows. These transmission projects provide increased cash flow predictability at a strong return on equity, with timely recovery of capital deployed. Despite the end of bonus depreciation this year, which will negatively affect cash flows in future years, Fitch expects financial metrics to remain strong and to benefit in terms of increased stability due to the aforementioned qualitative enhancements. Fitch expects PSE&G's funds from operations (FFO)-to-debt ratio to average more than 20 percent and its EBITDA-to-interest coverage ratio to remain greater than 6.0x over the 2012-14 period. Adequate Liquidity: Fitch considers PSE&G's liquidity position to be good, supported primarily by a commercial paper program that meets short-term funding needs. The utility's $600 million, five-year unsecured revolving credit facility matures on April 15, 2016 and has sufficient availability. Rating Triggers The ratings on PSE&G were upgraded one notch on July 27. Due to the strong rating on the utility, further positive rating actions are remote. A negative rating action on PSE&G, although unlikely, could occur if Fitch were to expect an increase in leverage that reduces PSE&G's FFO-to-debt ratio to below 20 percent over a multi-year period. Additional information is available at 'fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8,); --'Recovery Ratings and Notching Criteria for Utilities' (Aug. 12, 2011); --'Rating North American Utilities, Power, Gas, and Water Companies' (May 16, 2011). Applicable Criteria and Related Research: Rating North American Utilities, Power, Gas, and Water Companies http://fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=625129 Recovery Ratings and Notching Criteria for Utilities http://fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=677735 Corporate Rating Methodology http://fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=684460 ((Comments on this story may be sent to [email protected])) [ Back To TMCnet.com's Homepage ]