Fitch Affirms CMS Energy and Consumers Energy; CMS Energy Outlook Revised to
NEW YORK -- February 27, 2013
Fitch Ratings has affirmed the ratings for CMS Energy Corp. (CMS) and
Consumers Energy Co. (Consumers). The Rating Outlook for CMS has been revised
to Positive from Stable, and the Rating Outlook for Consumers remains at
Key Rating Drivers:
--CMS's ownership of a regulated integrated utility with a low-risk stable
--Fitch's assessment of the regulatory environment in Michigan as supportive;
--The up to $7 billion five-year capital spending plan is consistent with
management's strategy to invest in its regulated operations;
--Fitch's expectation that capital funding needs will increase the pace with
which the utility accesses the debt capital markets;
--Fitch sees limited opportunity for parent company deleveraging over the next
Positive Outlook for CMS:
CMS's rating and revised Outlook are supported by ownership of Consumers, an
integrated regulated utility located in Michigan with a stable credit profile.
Consolidated financial metrics are improving, largely due to a strong utility
financial profile. Fitch forecasts EBITDA-to-interest at or near 4.0x through
2017, which is consistent with Fitch guidelines for the 'BBB-' rating
category. Fitch's forecast for funds from operations (FFO)-to-debt ranges
between a current ratio of approximately 18% to around 15% over the forecast
period, and reflects the positive cash benefits associated with the recent
extension of bonus depreciation which, coupled with the company's net
operating losses (NOLs) outstanding limits CMS's cash tax obligation through
Fitch continues to monitor the company's financing activity as the high
nominal level of parent debt is a legacy credit concern. At Sept. 30, 2012,
total parent debt was nearly $2.4 billion, or 33% of total consolidated debt
(Fitch adjusted) and 23% of total capital (Fitch adjusted). Fitch sees limited
opportunity for parent company deleveraging over the next five-year period due
to a large utility capital plan, and expects the parent to maintain the
utility capital structure during this capital intensive period.
Disproportionate growth in the already high level of parent company debt could
place pressure on the parent company rating.
Affirmation of Consumers:
Consumers' rating and Stable Outlook reflect the utility's stand-alone
financial profile, and Fitch's assessment of the regulatory environment in
Michigan as supportive. Financial metrics for the utility remain healthy
relative to Fitch guidelines for the rating category and risk profile. Fitch
forecasts EBITDA-to-interest to range between mid-5x and mid-6x, and
debt-to-EBITDA to remain near 3.0x. FFO metrics are forecast to weaken from
current levels as the positive benefits associated with bonus depreciation
end, and with the up-tick in utility capital spending.
Execution of an up to $7 billion utility capital investment plan and related
funding needs limits positive rating action at Consumers at this time. Fitch's
rating assumes the company will earn a good return on its utility investment,
and timely recovery of related costs is a key driver for ratings stability
during this capital intensive period.
The inclusion of rate design components to mitigate regulatory lag, as well as
forward test years, supports a stable utility credit profile. Consumers' rate
plans include an automatic power supply cost recovery mechanism and a gas cost
recovery mechanism to facilitate timely recovery of commodity costs. Base rate
orders are filed by the utility annually, and are determined with 12 months of
the filing date. Authorized interim rates can be implemented within six months
of the filing date, and the permanent rate increase is subject to true-up or
Solid Liquidity Profile:
CMS had a consolidated liquidity position of $1.3 billion at Dec. 31, 2012,
including nearly $1.2 billion in availability under three separate multi-year
bank credit facilities, and $93 million in cash on hand. Fitch considers the
company's liquidity position as sufficient relative to funding needs. The
execution of multi-year credit facilities mitigates concern related to both
liquidity and bank credit market access. Additionally, of the $1.2 billion
consolidated bank credit capacity, no one bank is exposed for greater than
6.43% or $77.2 million.
Manageable Debt Maturity Schedule:
Fitch considers the consolidated debt maturity schedule to be manageable, with
$0 due in 2013, $450 million due in 2014, $650 million due in 2015, $530
million due in 2016, and $600 million due in 2017. Fitch views the
re-financing risk as low.
--Continued improvement in parent company financial metrics could lead to a
--Execution of a large capital investment plan and related capital funding
needs limits positive rating action for Consumers at this time;
--An adverse regulatory order that negatively impacts the financial position
of Consumers could place pressure on both the parent company and subsidiary
Fitch has affirmed the following:
CMS Energy Corp.
--IDR at 'BB+';
--Senior secured debt at 'BBB-';
--Senior unsecured debt at 'BB+'.
Consumers Energy Co.
--IDR at 'BBB';
--Senior secured debt at 'A-';
--Senior unsecured debt at 'BBB+';
--Preferred stock to 'BBB-';
--Short-term IDR at 'F3'.
The Rating Outlook for CMS Energy Corp. is revised to Positive from Stable.
The Rating Outlook for Consumers Energy Co. remains Stable.
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. 8, 2012
- 'Rating North American Utilities, Gas and Water Companies', May 16, 2011;
- 'Recovery Ratings and Notching Criteria for Utilities', Nov. 13, 2012;
- 'Parent and Subsidiary Rating Linkage', Aug. 8, 2012.
Applicable Criteria and Related Research
Parent and Subsidiary Rating Linkage
Recovery Ratings and Notching Criteria for Utilities
Rating North American Utilities, Power, Gas, and Water Companies
Corporate Rating Methodology
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Lindsay Minneman, +1-212-908-0592
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Daniel Neama, +1-212-908-0561
Glen Grabelsky, +1-212-908-0577
Brian Bertsch, New York, +1 212-908-0549
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