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 November 13, 2015 - 12:05 PM EST
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Fitch Rates Sempra Energy's Senior Unsecured Notes 'BBB+'

Fitch Ratings has assigned a 'BBB+' rating to Sempra Energy's (SRE) $400 million 2.85% senior notes due 2020 and $350 million 3.75% senior notes due 2025. The Rating Outlook is Stable.

KEY RATING DRIVERS

--Predictable earnings and cash flows from regulated utility operations and contracted energy infrastructure investments;

--Credit metrics consistent with rating category;

--Regulatory environment and recent general rate case (GRC) settlement constructive at its California utilities;

--Balanced expansion in the unregulated business segments;

--Sizeable capital expenditure at the California utilities;

--Significant parent-level debt.

Sempra's ratings primarily reflect its financial strength supported by its regulated utilities in California and South America and its contracted energy infrastructure investments. Approximately 80% of the earnings in the next several years will be regulated including California and South America. Additionally, Fitch believes the recent settlement of SDG&E and SoCalGas' 2016 GRC is constructive and reasonably within expectations. A final order is expected by end of 2015 or early 2016.

Low oil price environment will likely deter new, especially greenfield, natural gas liquefaction projects. However, it has minimal impact on the incumbent Cameron LNG (Cameron) project. Cameron is a source of stable earnings given its highly contracted revenues, low commodity price exposure, high-investment-grade sponsors and off-takers. Sempra estimates that its share of the project will provide earnings of $300 million to $350 million beginning 2019. The contracting of the contemplated train 4 and 5 could be affected somewhat by the oil price, in Fitch's opinion. However, the relatively low marginal development cost as an expansion could offset some of the negative financial impact.

Over time, Fitch expects Sempra to increase self-funding at its international operations through local operating cash and financing from local debt and equity markets, reducing funding needs at the parent level.

Sempra's funds from operations (FFO) fixed-charge coverage is expected to range from 5x - 5.3x in the next five years, consistent with its rating. FFO adjusted leverage is expected to range from 3.7x - 4.3x for the same period. These ratios exclude Sempra's portion of Cameron's project debt guarantee at Cameron due to a remote likelihood of the guarantee being exercised.

KEY ASSUMPTIONS

SDG&E:

--Total capital expenditure $5.8 billion over five years;

--Incorporates the settlement rate increase and escalation of 3.5% from 2017 - 2018.

SoCalGas:

--Total capital expenditure $6 billion over five years;

--Incorporates the settlement rate increase and escalation of 3.5% from 2017 - 2018.

U.S. Gas and Power:

--$1.3 billion capex spending over five years;

--Cameron to achieve commercial operation of all three trains in 2018, and have the first year of full operations in 2019.

International:

--$1.5 billion capex spending over five years.

RATING SENSITIVITIES

Sempra:

Positive:

--In light of the large capital spending program at its California utilities, it is unlikely that Sempra's ratings will be upgraded in the foreseeable future.

Negative:

--Sempra could be downgraded if the Cameron LNG project experiences substantial cost overrun or delays requiring a substantial amount of equity, or the project is terminated, resulting in the exercise of the guarantee;

--If the consolidated FFO adjusted leverage is above 5x on a sustained basis;

--If its California utilities are downgraded.

Date of Relevant Rating Committee: Sept. 30, 2015

Additional information is available at '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

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=994002

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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 Ratings, Inc.
Primary Analyst
Julie Jiang
Director
+1-212-908-0708
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY, 10004
or
Secondary Analyst
Philip W. Smyth, CFA
Senior Director
+1-212-908-0531
or
Committee Chairperson
Shalini Mahajan
Senior Director
+1-212-908-0351
or
Media Relations
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com


Source: Business Wire (November 13, 2015 - 12:05 PM EST)

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