Fitch Ratings has assigned a 'BBB+' instrument rating to
Proceeds from the issuance will be used to repay short-term borrowings and for other general corporate purposes. As of
LUCo's Long-Term Issuer Default Rating (IDR) is 'BBB'. The Rating Outlook is Stable. The rating primarily reflects the company's low-risk regulated electric, natural gas, water and wastewater utility operations and adequate financial profile.
Key Rating Drivers
Diversified Portfolio of Utilities: LUCo's rating reflects the company's low-risk regulated electric, natural gas, water and wastewater utility operations and adequate financial profile. LUCo benefits from its diversified portfolio of regulated utility operations across 13 states. This asset diversification mitigates the company's exposure to any regional or state-specific shocks that could affect cash flows.
LUCo was built up through several acquisitions, most significantly of
Adequate Financial Metrics: LUCo's financial profile is supported by stable and predictable earnings from regulated utility operations. Fitch calculates 2022 FFO leverage at 4.5x and LTM as of
Liberty Utilities Finance GP1 (Liberty Finance) is a financing vehicle for LUCo and until now has been used to issue long-term senior unsecured debt for LUCo. With the proposed issuance and going forward LUCo is planning to issue senior unsecured debt only at LUCo. All remaining outstanding debt of Liberty Finance is fully and unconditionally guaranteed by LUCo and ranks pari passu with LUCo's senior unsecured debt. Liberty Finance senior unsecured debt rating is 'BBB+'. The senior unsecured ratings for operating utilities receive a one notch uplift relative to the IDR as per Fitch's criteria
Parent/Subsidiary Linkage: Parent and subsidiary linkage exists between
LUCo is rated the same as APUC. If Fitch were to consider LUCo's SCP to be stronger than APUC's, the linkage would follow a weak parent/strong subsidiary approach. Emphasis would be placed on the utilities' low-risk regulated operations in
Derivation Summary
LUCo benefits from significant geographic and regulatory diversification. The company consists of electric, natural gas, and water and wastewater utilities in 13 states. This portfolio compares favorably with larger single-state utilities from a diversification perspective, although its larger peers may benefit more from efficiencies of scale. A significant amount of LUCo's EBITDA is exposed to
Peer
Key Assumptions
Normal weather;
Capex in line with management's guidance;
Securitization debt and related revenue to serve the debt is excluded from the FFO leverage calculation.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
FFO leverage expected to remain below 4.5x on a sustained basis.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
FFO leverage expected to exceed 5.7x on a sustained basis;
Adverse regulatory decisions that result in less-timely cost recovery or significantly weaker financial metrics;
A two-notch downgrade of parent
Liquidity and Debt Structure
Adequate Liquidity: Fitch considers LUCo's liquidity to be adequate. LUCo primarily meets its short-term liquidity needs through the issuance of CP under its
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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