(The following statement was released by the rating agency)NEW YORK, April 01 (Fitch) Fitch Ratings has assigned a 'BBB+' rating to Duke Energy Corp.'s (DUK) proposed new $750 million dual tranche issue of senior notes. The debt offering consists of a floating rate senior note due 2017 and a fixed rate senior note due 2024. The Rating Outlook is Stable. The notes will be unsecured and will rank equal to all of DUK's existing and future unsecured debt obligations. Approximately $400 million of proceeds will be contributed to Duke Energy Ohio, Inc. to repurchase a like amount of DEO's tax exempt bonds and the remainder for general corporate purposes including the repayment of outstanding commercial paper. Key Rating DriversConservative Business Model: The consolidated ratings are supported by the credit strength and cash flow diversity of DUK's six regulated utility subsidiaries. Utility operations are expected to provide approximately 85% of consolidated earnings and cash flow. Each of the utilities has a solid credit profile and is well positioned within their respective rating categories. Solid Credit Metrics: Consolidated credit metrics are expected to remain strong over the forecast period. Fitch estimates consolidated EBITDA/interest and FFO/interest will both average over 5.0 times (x) and FFO/debt approximately 19%, which is consistent with Fitch's target ratios for 'BBB+' issuers and DUK's peer group of utility parent companies. Debt/EBITDA, however, will be somewhat weak for the rating category with 2013 Debt/EBITDA projected by Fitch to be about 4.4x, trending down to about 4.0x over the next two years. High Parent Leverage: The high percentage of parent level debt is a rating concern. The acquisition of the more levered PGN in 2012 increased the proportion of debt at the parent level (DUK plus PGN). Fitch expects parent debt (DUK plus PGN) to be approximately 30% of consolidated debt over the next several years. Capital and Operating Cost Recovery: Six tariff increases implemented in 2013 are expected by Fitch to strengthen consolidated earnings and cash flow measures through 2014. Base rate increases were implemented in each of DUK's two North Carolina territories, as well as in South Carolina, Florida, and Ohio following regulatory approval of settlement agreements. Duke Energy Indiana, LLC (DEI) also increased rates in January 2013 through a rider mechanism to reflect the full amount of approved construction work in progress (CWIP) related to its Edwardsport Integrated Gasification Combined Cycle (IGCC) plant. Capital Requirements: Consolidated capital expenditures are expected to increase moderately in 2014 then begin to ramp up beginning in 2015 due, in part, to rising environmental expenditures and plans to add new natural gas plants in the Carolinas, Florida and Kentucky later this decade to replace plant retirements and meet load growth. The capex forecast also includes discretionary expenditures for uncommitted renewable and commercial transmission projects.Achieving Synergies: DUK is at risk for achieving system fuel savings included as part of the PGN merger settlement agreement with the North and South Carolina regulators. The companies guaranteed $687 million in system fuel savings for Carolina retail customers over the next five years (plus an additional 18 months if coal consumption at certain plants is less than originally forecast due to low gas prices). The company claims to be on track to achieve its targeted savings.Dan River Ash Basin Spill: The current ratings assume the cost of repair and clean up and any potential penalties following a coal ash spill at Duke Energy Carolina's Dan River coal plant will be manageable within the current rating category. Fitch expects the event will require additional investment over the next several years to remediate other coal ash ponds throughout the DUK system, but should be recoverable in rates.Exit from the Generation Business: Management has announced that it is seeking buyers for its Ohio merchant generation business. The transaction is expected to be neutral for credit quality. Management plans to use proceeds from this bond issue to recapitalize its Ohio utility to align its capital structure with its revised business model and earnings capacity. Fitch expects sale proceeds to be below the book value of approximately $3 billion to $3.5 billion. Since management indicated the transaction is expected to be earnings accretive sale proceeds are not expected to be used for debt reduction. The portfolio consists of 13 coal and gas-fired power plants with a total capacity of 6,600 MWs. Rating SensitivitiesPositive: Due to the substantial parent leverage, higher ratings are not anticipated in the near term. Negative: Although not expected, an increase in the proportion of parent leverage poses the greatest risk to current ratings. Contact:Primary AnalystRobert HornickSenior Director+1-212-908-0523Fitch Ratings, Inc.One State Street PlazaNew York, NY 10004Secondary AnalystPhilip SmythSenior Director+1-212-908-0331Committee ChairpersonGlen GrabelskyManaging Director+1-212-908-0577Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com.Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research:--'Corporate Rating Methodology' (Aug. 5, 2013);--'Recovery Ratings and Notching Criteria for Utilities' (Nov. 12, 2012);--'Rating North American Utilities, Power, Gas and Water Companies' (May 16, 2011).Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkagehttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139 Recovery Ratings and Notching Criteria for Utilitieshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085 Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155 Additional Disclosure Solicitation Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825783 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Fitch Rates Duke Energy's Senior Notes 'BBB+' DUK.N
(The following statement was released by the rating agency)NEW YORK, April 01 (Fitch) Fitch Ratings has assigned a &aposBBB+&apos rating to Duke Energy Corp.&aposs (DUK) proposed new $750 million dual tranche issue of senior notes. The debt offering consists of a floating rate senior note due 2017 and a fixed rate senior note due 2024. The Rating Outlook is Stable. The notes will be unsecur
April 1, 2014
