Fitch Rates Duke Energy Carolinas' $650MM Secured Bonds 'A+'

  Fitch Rates Duke Energy Carolinas' $650MM Secured Bonds 'A+'

Business Wire

NEW YORK -- September 18, 2012

Fitch Ratings has assigned its 'A+' rating to Duke Energy Carolinas, LLC's
(DEC) new $650 million, 4% first and refunding mortgage bonds due Sept. 30,
2042. The Rating Outlook is Stable. The bonds rank equally with all existing
secured debt obligations. Net proceeds will be used to repay at maturity DEC's
$400 million, 5.625% senior notes due Nov. 30, 2012 and $20 million 1999
series pollution bonds due Oct. 1, 2012 and the remainder for general
corporate purposes.

Key Rating Drivers

Solid Credit Profile: Credit metrics are solidly positioned within the rating
category and are improving due to rate increases implemented in North and
South Carolina effective January 2012. Fitch expects EBITDA/interest and
FFO/interest coverage measures to each range between 5.5x and 6.0x in 2012 and
2013 and FFO/debt between 23%-25%.

Manageable Capital Requirements: DEC is nearing the end of a major
construction cycle, which should result in moderately lower capital
expenditures and ease financing pressures in 2013. Both the 825 MW Cliffside
coal-fired generating station and the 620 MW, natural gas fired Dan River
combined cycle unit are expected to enter commercial operation by 2012
year-end. Capex is expected to trend moderately upward after 2013, primarily
due to environmental compliance spending.

Regulatory Risk: The traditionally constructive regulatory environment in
North Carolina is less certain due to the CEO transition controversy, which
prompted regulators to initiate investigative hearings that may lead to
financial penalties or other corporate commitments. The full impact will not
be known until planned rate cases for DEC and its North Carolina affiliate are
completed in 2013. Ratings assume timely recovery of DEC's capital and
operating costs.

Planned Rate Filings: Rate cases are planned before year-end in both North and
South Carolina to recover capital investments in the new electric generation
facilities and other cost of service items. The ratings assume higher rates
are implemented mid-2013. The planned 2012 rate cases are the last of three
rate filings to recover capital invested to modernize the generation fleet and
power delivery system.

Guaranteed Fuel Savings: DEC is at risk for achieving its share of system fuel
savings guaranteed as part of the merger settlement agreement between parent
Duke Energy Corp. and the North Carolina Public Service Commission. Management
guaranteed a combined $650 million in joint dispatch and fuel savings for DEC
and its affiliate Progress Energy Carolinas over the first five years after
the merger close (plus an 18 additional months if coal consumption is less
than originally forecast due to low gas prices).

What would lead to consideration of a negative rating action?

--Adverse Regulatory Outcomes: Lack of rate support for DEC's fleet
modernization program poses the greatest downside risk to ratings. The company
has invested heavily to replace aging power plants and to comply with
environmental regulations and is dependent on continued rate support to
maintain ratings.

What would lead to consideration of a positive rating action?

--Not likely at the present rating level.

Additional information is available at 'www.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. 12, 2011);

--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011);

--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012);

--'Rating North American Utilities, Power, Gas and Water Companies' (May 16,
2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677735

Rating North American Utilities, Power, Gas, and Water Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129

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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst
Robert Hornick, +1-212-908-0523
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Philip Smyth, +1-212-908-0331
Senior Director
or
Committee Chairperson
Glen Grabelsky, +1-212-908-0577
Managing Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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