Fitch Rates CMS Energy's $250MM Senior Unsecured Note Issuance 'BB+';
NEW YORK -- March 21, 2013
Fitch Ratings has assigned a 'BB+' rating to CMS Energy Corp.'s (CMS) $250
million issuance of 4.70% senior unsecured notes, due March 31, 2043. Proceeds
from the sale will be used primarily to repay at, or prior to maturity the
$250 million 2.75% senior note, due 2014. The new notes rank equally in right
of payment with existing senior unsecured obligations of CMS. The Rating
Outlook is Positive.
Key Rating Drivers:
--CMS' 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 sees limited opportunity for parent company de-leveraging over the
next five-year period;
--A sufficient liquidity position relative to funding needs.
Positive Outlook for CMS:
CMS' rating and Positive Outlook are supported by ownership of Consumers
Energy Co. (IDR 'BBB', Stable Outlook'), 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 4.0 times (x) through 2017,
which is consistent with its guidelines for the 'BBB-' rating category.
Fitch's forecast for FFO to debt ranges between 18% - 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 NOLs
outstanding means CMS will not pay cash taxes earlier than 2017.
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 de-leveraging 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. A
disproportionate growth in the already high level of parent company debt could
place pressure on the parent company rating.
Large Capital Plan:
The five-year capital investment plan has been increased to up to $7 billion
to accommodate a late 2012 announcement to construct a new 700 MW natural gas
plant in Michigan. Fitch expects capital spending levels will remain high over
the five-year forecast period, with the plan focused on delivering utility
system upgrades and rate base growth. CMS can expect to earn a good return on
its investment and the current regulatory environment supports timely recovery
of capital costs incurred. Execution of the capital plan and timely cost
recovery are key to maintaining credit quality.
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 Energy Co. at this time.
An adverse regulatory order that negatively impacts the financial position of
Consumers Energy Co. could place pressure on both the parent company and
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
Corporate Rating Methodology
Rating North American Utilities, Power, Gas, and Water Companies
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Lindsay Minneman, +1 212-908-0592
Fitch Ratings, Inc.
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