FTS Outlook Revised By S&P From Negative To Stable

Following the conversion of convertible debentures Standard & Poor’s has announced:

  • •On Oct. 28, 2014, Fortis Inc. announced the receipt of the final installment, C$1.2 billion, of the C$1.8 billion convertible debentures that it used to finance the UNS Energy Corp. transaction.
  • •In addition, holders of more than 99% of C$1.79 billion in principal of the convertible debentures have elected to convert the debt into Fortis common shares.
  • •The conversion will reduce the company’s debt load and lifts the adjusted funds from operations-to-debt metric above the downgrade threshold.
  • •As a result, we are revising our outlook on Fortis and its Canadian and Caribbean subsidiaries to stable from negative.
  • •We are also affirming our ratings on the companies, including our ‘A-‘ long-term corporate credit rating on Fortis.

The stable outlook reflects Standard & Poor’s assessment of the underlying operational and financial stability of Fortis’ operating companies. We expect these operating companies to continue generating stable and predictable cash flow, a key credit strength, which mitigates the relatively weak financial measures for the ratings.

We could lower the ratings on Fortis if the company’s AFFO-to-debt were to fall and stay below 9%. This could happen if Fortis were to employ more leverage or if its larger subsidiaries encountered major financial or operational difficulties or adverse regulatory decisions. Alternatively, investment in assets with materially higher business risks and cash flow variability could also lead to a downgrade.

A positive outlook or upgrade during our two-year forecast horizon would require Fortis to improve its credit metrics on a sustained basis, specifically AFFO-to-debt above 14%. However, we believe this is unlikely given the company’s expansion program.

The previous assessment of a negative outlook was previously reported on PrefBlog.

Fortis Inc. has several preferred issues trading on the Toronto Exchange: FTS.PR.E (OperatingRetractible); FTS.PR.F and FTS.PR.J (PerpetualDiscount); and FTS.PR.G, FTS.PR.H, FTS.PR.K and FTS.PR.M (FixedReset).

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