Fitch Rates Virginia Electric and Power Co.'s $500MM Issuance of Senior
Unsecured Notes 'A-'
NEW YORK -- March 12, 2013
Fitch Ratings has assigned an 'A-' rating to Virginia Electric Power Co.'s
(VEPCo) $500 million issuance of 2013 series C 2.75% senior unsecured notes
due March 15, 2023. Proceeds will be used for the repayment of short-term
borrowings, and general corporate purposes. The notes will rank on parity in
right of payment with all the existing and future senior unsecured debt and
will be senior in right of payment to all the existing and future subordinated
debt. The Rating Outlook for VEPCo is Stable.
Stable Outlook: The rating of VEPCo and Stable Outlook are supported by the
low-risk nature of its regulated utility operations, which deliver predictable
cash flow metrics due largely to balanced regulatory treatment. VEPCo operates
an electric distribution, transmission and generation system within two state
regulatory jurisdictions, Virginia and North Carolina.
KEY RATING DRIVERS:
--Strong financial metrics;
--Balanced regulatory treatment;
--Sizeable capital investment plan;
--Manageable debt re-financings.
Strong Financial Metrics: Financial metrics are forecast by Fitch to remain
strong relative to guidelines for the rating category and risk profile. Fitch
forecasts the ratio of EBITDA to interest to remain near the 6.67 times (x)
(Fitch calculated) for the fiscal year-ended Dec. 31, 2012. Fitch forecasts
funds from operations (FFO) interest coverage and FFO-to-debt to range between
6.8x to 6.1x and 28% and 23%, respectively over the next few years. Fitch
attributes the reduced FFO to the absence of bonus depreciation and earnings
lag from incremental new capex.
Balanced Regulatory Treatment: Fitch views the regulatory environment as
balanced, and continues to expect supportive treatment for timely recovery of
fuel and non-fuel costs and considers the inclusion of riders and incentive
returns on equity (ROEs) on approved rider projects in the utility's current
pipeline of projects (up to and including Brunswick County) as supportive of
credit quality, particularly in consideration of these sizeable investments in
new utility generation.
Sizeable Capital Investment Plan: Capital expenditures will be elevated over
the next several years as VEPCo executes a capital plan focused on investments
in new generation. The growth plan is supported by positive demographic trends
within the utility service territory. Fitch considers successful execution of
the capital plan as material to maintaining ratings stability, and the rating
assessment assumes a balanced combination of debt and equity issuance to fund
internal cash flow deficits during this capital intensive period, as well as
continued regulatory support.
Sufficient Liquidity: VEPCo is a joint borrower with parent company Dominion
Resources, Inc. (DRI; IDR 'BBB+', Stable Outlook) on two separate revolvers
for total consolidated borrowing capacity of $3.5 billion, of which $1.062
billion was available at Dec. 31, 2012. The two separate revolvers each mature
in September 2017 and are sized at $5 billion and $500 million, respectively.
VEPCo sub-limits are currently set at $1 billion and $250 million,
respectively, and can be changed on an as-needed basis. Single-bank
concentration is not a material concern as no one bank has extended greater
than 7% of the total $3.5 billion consolidated borrowing capacity.
Manageable Debt Re-financings: VEPCo's debt maturities as of March 12, 2013
are manageable with $17.7 million due in 2013, $17.6 million due in 2014,
$210.6 million due in 2015, $476.4 million due in 2016 and $678.7 million due
in 2017. Fitch considers the re-financing risk as low and views VEPCo's access
to the capital markets as unrestricted.
--Execution of a sizeable utility capital investment plan limits positive
rating action at this time.
--Less supportive regulatory treatment in Virginia and North Carolina that
would limit the ability to earn an adequate and timely return on investments
could adversely affect the utility's credit profile.
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:
--'Recovery Ratings and Notching Criteria for Utilities', Nov. 13, 2012;
--'Corporate Rating Methodology', Aug. 8, 2012;
--'Parent and Subsidiary Rating Linkage', Aug. 8, 2012;
--'Rating North American Utilities, Power, Gas and Water Companies', May 16,
Applicable Criteria and Related Research
Recovery Ratings and Notching Criteria for Utilities
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Rating North American Utilities, Power, Gas, and Water Companies
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Fitch Ratings, Inc.
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