Natural gas local distribution companies (LDCs) have become the strong
and steady growth vehicle in the broader utilities sector, according to
a new report by Fitch Ratings. The need for replacement of aging pipe
and a heightened concern for safety following several high-profile
pipeline accidents in recent years have created a large backlog of
organic growth opportunities for LDCs.
Capex has increased significantly over the past five years, and Fitch
expects capex growth to continue over the long-term as LDCs accelerate
their replacement of aging pipe. The focus has been on pipe made out of
cast iron, wrought iron, and bare steel, materials that are more
susceptible to corrosion and degradation over time. These pipes were
installed more than 50 years ago and in some instances date back to the
late 19th century.
Many state regulatory commissions have helped LDCs with their safety and
reliability goals by implementing infrastructure replacement riders that
allow utilities to add certain pipeline replacement costs to rate base
without the need to go through a general rate case. These riders enable
LDCs to minimize regulatory lag and start earning a return on approved
capital investments in a timelier manner. These LDCs are thus better
able to maintain their generally strong financial profiles.
LDCs have maintained strong credit quality over the past decade, with an
average Issuer Default Rating (IDR) between 'BBB+' and 'A-' for the
pure-play natural gas distribution utilities that Fitch rates. This
average IDR for LDCs is expected to remain stable at least through 2018,
supported by constructive regulation and solid financial metrics. The
median FFO adjusted leverage and adjusted debt to EBITDAR metrics have
both remained under 3.35x since 2009. Fitch expects these median
leverage metrics to increase above 3.5x through 2018 as LDCs continue to
ramp up their capex for further pipe replacement but to remain
supportive of credit quality.
Additional information is available at 'www.fitchratings.com'.
LDCs Become the Growth Utilities (Infrastructure Replacement Provides
Pipeline for Organic Growth)
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.
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
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Copyright Business Wire 2016
Source: Business Wire
(January 11, 2016 - 11:14 AM EST)
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