Fitch Rates Public Service Co. of Colorado's FMBs 'A+'

NEW YORK--()--Fitch Ratings has assigned an 'A+' rating to Public Service Company of Colorado's (PSCo) $250 million, 3.55% first mortgage bonds (FMBs) due June 15, 2046. The FMBs will rank pari passu with PSCo's other senior secured obligations.

The Rating Outlook on PSCo's 'A-' Long-Term Issuer Default Rating (IDR) is Stable.

Net proceeds will be used for general corporate purposes, including the repayment of short-term debt and the funding of the utility's capex program.

KEY RATING DRIVERS

Low-Risk Business Profile: PSCo's ratings primarily reflect the low-risk business profile and stable cash flows of the utility's regulated integrated electric and natural gas distribution operations.

Balanced Regulation: PSCo's ratings also reflect a relatively balanced and stable regulatory environment in Colorado. Supportive regulatory mechanisms include adjustment clauses for fuel costs and purchased power, trackers for pension expense and property taxes, and riders for electric and natural gas transmission investments and cost compliance related to renewable energy and the Clean Air Clean Jobs Act (CACJA).

Elevated Capex: Fitch expects PSCo's capex to average approximately $1 billion per year through 2020. Key drivers of capex include investments associated with the CACJA, projects related to gas pipeline integrity, and distribution system enhancement. Fitch expects PSCo to finance capex in a manner consistent with its currently authorized capital structure.

Strong Financial Metrics: PSCo's credit profile benefits from strong financial metrics. Fitch forecasts adjusted debt/EBITDAR to average around 3.4x over 2016-2018, with FFO adjusted leverage around 3.8x and FFO fixed-charge coverage around 6.4x.

Standard Notching: There is a moderate-to-strong linkage between the IDRs of parent Xcel Energy Inc. (Xcel; 'BBB+'/Stable Outlook) and each of its subsidiaries. The linkages originate primarily from strategic drivers. Each subsidiary is important to Xcel, and the parent financially supports its subsidiaries when needed via equity infusions and funding the inter-company money pool. Fitch considers a one- to two-notch differential between the IDRs of Xcel and its subsidiaries to be appropriate.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for PSCo include:

--EBITDA growth averaging 3.5% per year over 2016 - 2019;

--Base capex of approximately $5 billion over 2016 - 2020;

--Rate case outcomes consistent with historical rate orders.

RATING SENSITIVITIES

Positive Rating Action: Given the sizeable capex program, a positive rating action is unlikely in the near term, but could occur if adjusted debt/EBITDAR and FFO adjusted leverage were expected to improve to 3.0x and 3.2x, respectively, on a sustained basis.

Negative Rating Action: A rating downgrade could occur if adjusted debt/EBITDAR were expected to weaken to 4.0x on a sustained basis. A material deterioration of the Colorado regulatory environment that meaningfully reduces the stability and predictability of earnings and cash flows or a shift in management strategy that results in weaker financial support from Xcel could also result in a negative rating action.

LIQUIDITY

Fitch considers PSCo's liquidity to be adequate. Xcel and its utility subsidiaries primarily meet their short-term liquidity needs through the issuance of commercial paper (CP) under an aggregate $2.75 billion revolving credit facility that expires in October 2019. PSCo has a borrowing limit of $700 million under this facility. As of March 31, 2016, PSCo had no CP borrowings and $4 million of letters of credit outstanding, leaving $696 million of availability under PSCo's portion of the facility.

Liquidity is also available to PSCo through participation in an intercompany money pool. As of March 31, 2016, PSCo had full availability under the money pool, with a total borrowing limit of $250 million.

Fitch expects Xcel and its utility subsidiaries to maintain ready access to the capital markets to fund capex and refinance maturing long-term debt.

PSCo has a manageable long-term debt maturity schedule over the next five years, with $129.5 million of 4.375% FMBs due September 2017, $300 million of 5.8% FMBs due August 2018, $400 million of 5.125% FMBs due June 2019, and $400 million of 3.2% FMBs due November 2020.

Date of Relevant Rating Committee: April 20, 2016

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (pub. 29 Feb 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878264

Additional Disclosures

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005696

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Contacts

Fitch Ratings
Primary Analyst
Kevin L. Beicke, CFA
Director
+1-212-908-0618
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Philippe Beard
Director
+1-212-908-0242
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Kevin L. Beicke, CFA
Director
+1-212-908-0618
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Philippe Beard
Director
+1-212-908-0242
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com