FTS : Outlook Negative, says S&P

Standard & Poor’s has announced:

  • •We reviewed the impact of the U.S. tax reform on Fortis Inc. (Fortis), and the company’s consolidated credit metrics are weaker than expected.
  • •There are key pending regulatory decisions that add to the downside risk and could further stress credit metrics.
  • •As a result, we are revising our outlook on Fortis and subsidiaries ITC Holdings Corp., Tucson Electric Power Co., FortisAlberta Inc., and Caribbean Utilities Co. Ltd. to negative from stable.
  • •We are also affirming our ratings on the companies, including our ‘A-‘ long-term issuer credit ratings.

The negative outlook reflects S&P Global Ratings’ view of Fortis’ weak financial metrics over the next 12-24 months and the U.S. tax reform pushing back our expectation for financial improvement. In addition, the outlook reflects the risk that any adverse outcomes from pending regulatory decisions could further depress credit metrics. During our two-year outlook period, we forecast the company’s FFO-to-debt at about 9.5% in 2018 before improving to about 10.5% by 2020.

We could take a negative rating action on Fortis if the company’s FFO-to-debt were projected to stay below 10%. This could happen if the company experiences material delays and cost overruns in executing its capital programs, material adverse regulatory decisions, and significant debt-funded acquisitions or operational difficulties that lead to unexpected cost and debt increase. Any deterioration of business risk, including expansion of unregulated operations or acquisitions that increase the compnay’s reliance on generation within its integrated utility operations, could also lead to a downgrade.

We could revise the outlook to stable if Fortis improves its financial position, with FFO-to-debt remaining consistently around 11% or above, without any increase in business risk. This could happen if Fortis were to gradually improve its cash flow metrics with the benefit of favorable regulatory outcomes while maintaining its current business strategy.

Affected issues are FTS.PR.F, FTS.PR.G, FTS.PR.H, FTS.PR.I, FTS.PR.J, FTS.PR.K and FTS.PR.M.

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