Fitch Affirms Sempra Energy & Subsidiaries; Outlook Remains Stable.
SRE's ratings are based on the stability and predictability of cash flows from its California operations, credit metrics consistent with the 'A' rating category, a disciplined approach to investing and capital spending, and appropriate risk management capabilities for its current risk profile. The rating also considers the financial strength of the regulated utilities, San Diego Gas and Electric Company and Southern California Gas Company, which generate approximately 65% of SRE's consolidated funds from operations (FFO) and benefit from a supportive regulatory environment, strong regional economy, and minimal commodity price exposure. Furthermore, Fitch estimates that SRE has adequate headroom under its existing credit facilities to withstand an extreme market and credit event stress at its commodities subsidiary.
The Stable Outlook for SRE is based on Fitch's expectation that despite weaker consolidated credit metrics as the company completes a $6.6 billion minimum committed capital spending program over the next four years, credit ratios will remain within parameters for current rating levels. The increased capital spending is part of SRE's plans to increase its investment in utility infrastructure and change Sempra Global's business mix from generation to gas infrastructure. The company is in the process of divesting its Texas fleet at a premium, and investing the proceeds in LNG terminals, gas storage facilities, and gas pipelines. Cash flows from these projects are largely hedged by long-term contracts with investment grade counterparties. These contracts are largely fixed fee based on capacity, and therefore should generate stable FFO in the range of $275 million to $300 million per year by 2009.
SRE receives regulatory approval for recovery of most of its regulated capital spending, and Global's gas infrastructure investments are hedged with long-term contracts before committing substantial capital investments. Asset sale proceeds, cash from operations, and additional debt and hybrid securities will fund the capital spending program. Fitch projects that 2006 consolidated funds from operations (FFO) to interest will remain in the range of approximately 4.0 times (x) to 5.0x, and total debt adjusted for debt equivalents to FFO in the approximately 3.5x to 4.5x range.
Ratings concerns include the risks of funding of capital projects in a ratings-unsupportive manner, a significant, unanticipated, negative change in the California regulatory environment, material cost overruns or significant counterparty default on the LNG, storage, and pipelines construction projects, and an adverse change in book structure, strategy, or liquidity adequacy at Commodities.
Sempra Energy (SRE) is a holding company that consists of two large California utilities and multiple unregulated businesses that include trading, merchant power, pipelines and storage, and LNG.
Fitch affirms the following ratings, Outlook Stable:
--Senior unsecured 'A'.
San Diego Gas & Electric Company
--Senior secured 'AA';
--Preferred stock 'A+';
--Preferred Stock 'A'.
Southern California Gas Company
--Senior secured 'AA';
--Senior unsecured 'AA-';
--Preferred stock 'A+'
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|Comment:||Fitch Affirms Sempra Energy & Subsidiaries; Outlook Remains Stable.|
|Date:||Jun 16, 2006|
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