Fitch assigns BBB+ rating to Southern Co. subsidiary SPC's US$275M, 5.15% senior notes due Sept. 15, 2041; outlook stable
November 15, 2011
– Fitch Ratings has assigned its 'BBB+' rating to the Southern Power Company's (SPC) $275 million incremental principal issued under its 5.15% senior notes Series 2011A, due Sept. 15, 2041.
In September, Fitch assigned the same rating to $300 million senior notes under the same 2011A series. The aggregate principal of the 2011A series including these additional notes will be $575 million. SPC's Issuer Default Rating is 'BBB+' with a Stable Outlook. The expected use of issuance proceeds is to retire the company's Series B 6.25% Senior Notes due July 15, 2012.
Conservative Business Model
SPC primarily sells power under long-term power sales agreements with investment-grade counterparties. The corporate strategy is to have at least 80% of its output covered by contracts or similar off-take arrangements with credit-worthy off-takers. This results in a high visibility of cash flows and consistent credit metrics over time.
Low Commodity and Environmental Risk
SPC is generally able to pass through fuel costs to its customers under power sales contracts, although SPC retains margin exposure to the operating efficiency of its plants. SPC is well positioned relative to other power generators in the face of more stringent environmental regulations that affect coal and oil-fired generation, as SPC's units are mainly modern gas-fired power plants.
Stable Rating Outlook
SPC's Stable Rating Outlook is based on ample liquidity and access to capital both on its own and as a subsidiary of The Southern Company, management's conservative business strategy, and relatively low projected external funding requirements. With this issue, SPC will pre-fund its 2012 long-term debt maturity, further enhancing its liquidity profile.
Capital Spending and Completion Risk
There is modest to moderate completion risk associated with SPC's construction of the 720 megawatts (MW) Cleveland County combustion turbines in North Carolina, and the 100 MW Nacogdoches biomass facility in Texas.
SPC is a wholly-owned subsidiary of The Southern Company and participates in the Southern Power Pool. Currently, SPC owns 7,908 MW of nameplate capacity in commercial operation in the United States. For additional information on SPC, please refer to Fitch's report 'Southern Power Company' dated Nov.1, 2011.
The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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