Southwest Gas Corp. Debt Affirmed At 'BBB' By Fitch.
NEW YORK--(BUSINESS WIRE)--April 2, 2002
Southwest Gas Corp.'s (SWX) outstanding senior unsecured debt is affirmed at 'BBB' by Fitch Ratings. Also affirmed at 'BBB-' is the outstanding trust originated preferred securities issued by Southwest Gas Capital I. The Rating Outlook is Stable. SWX serves nearly 1.4 million gas distribution customers in portions of Nevada, Arizona, and California. Cities served include Las Vegas, Phoenix, and Tucson.
SWX's ratings recognize the operating, regulatory, and financial characteristics associated with its dynamic service territory. Increasing operating and capital costs associated with a high growth rate requires periodic rate relief and results in moderate regulatory lag. However, in recent years the company has made timely general rate case filings in all three jurisdictions and received meaningful rate relief in Arizona and Nevada in late 2001. As a result, credit measures are expected to remain stable over the next few years. EBITDA/Interest coverage should average approximately 3.5 times (x) and debt to total capitalization is expected to be in the low-60% range. These ratios are consistent with SWX's current 'BBB' rating.
During 2001, SWX experienced some temporary weakening of credit measures as borrowings were utilized to fund natural gas purchases that were at historically high levels because of an unprecedented increase in gas commodity prices during the 2000-2001 heating season. Gas costs that are incurred in excess of amounts embedded in customer rates are generally deferred and recovered under purchase gas adjustment (PGA) mechanisms. The timeliness of recoveries varies by state, but full recovery could extend beyond a year. As a result, working capital borrowings materially increased for a period of time. However, the situation reversed itself over the past twelve months and SWX ended the first quarter of 2002 in the favorable position of having no net PGA balance and no outstanding short-term working capital borrowings.
SWX does have some near-term refinancing risk. In June 2002, $100 million of the debentures mature and SWX's $350 million bank revolver is up for renewal, $200 million of which is classified as long-term debt. SWX is expected to access long-term debt capital markets in the second quarter of 2002.
Litigation exposure has been materially reduced over the past year as the United States District Court of Arizona dismissed numerous claims made by Southern Union Co. relating to the terminated acquisition of SWX by ONEOK, Inc. Based on information provided by the company, SWX would be not be financially stressed if, based on a future adverse court ruling, it were required to pay damages and expenses.