XCEL ENERGY INC. Fitch Ratings has assigned an 'A+' rating to Northern States Power Company-Minnesota's (NSP-Minnesota) issuance of green first mortgage bonds (FMBs).
The FMBs will rank pari passu with NSP-Minnesota's other senior secured obligations.
Net proceeds will be used to finance or refinance existing and future eligible green expenditures, including amounts that were previously financed with commercial paper (CP).
NSP-Minnesota's Long-Term Issuer Default Rating (IDR) is 'A-'. The Rating Outlook is Stable.
Key Rating Drivers
Relatively Constructive Regulation: NSP-Minnesota operates in a relatively constructive and stable regulatory environment across three states, predominantly in
Winter Storm Uri: NSP-Minnesota realized
Large Capex Plan: NSP-Minnesota has a large capex plan that includes significant spending associated with management's 'steel for fuel' renewable energy investment strategy and electric transmission. Capex is projected to total approximately
Adequate Financial Metrics: Fitch expects NSP-Minnesota's financial metrics to remain supportive of existing ratings. Fitch forecasts FFO leverage to average 3.5x-3.8x through 2024.
Parent/Subsidiary Linkage: Parent and subsidiary linkage exists and follows a weak parent/strong subsidiary approach for NSP-Minnesota. Fitch considers NSP-Minnesota to be stronger than parent
Fitch considers the legal ring-fencing factor 'porous' due to the general protections afforded by economic regulation, including a restriction on dividend payments. The access & control factor is also evaluated as 'porous.' Xcel centrally manages the treasury function for its utilities and is the sole source of equity. There is also a shared revolving credit facility for Xcel and its utility subsidiaries; however, each subsidiary issues its own long-term debt. Fitch would allow the utilities' Long-Term IDRs to be up to two notches higher than Xcel's Long-Term IDR.
Derivation Summary
The credit profiles of NSP-Minnesota,
PSCo and NSP-Minnesota benefit from a larger scale and scope of operations than NSP-Wisconsin. The financial metrics of the three entities are similar, although PSCo's leverage is expected to remain slightly higher. Fitch forecasts FFO leverage to average 4.0x-4.1x through 2024 at PSCo, 3.5x-3.8x at NSP-Minnesota and 3.8x at NSP-Wisconsin.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer Include:
Total base capex of
Rate case outcomes consistent with historical rate orders;
Normal weather.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a positive rating action/upgrade:
A positive rating action is unlikely in the near term due to the large capex plan;
FFO leverage expected to remain less than 3.5x on a sustained basis.
Factors that could, individually or collectively, lead to a negative rating action/downgrade:
FFO leverage expected to exceed 4.5x on a sustained basis;
A material deterioration of the
A shift in management strategy that results in weaker financial support from Xcel.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: Fitch considers liquidity for Xcel and its utility subsidiaries to be adequate.
Xcel and its utility subsidiaries primarily meet short-term liquidity needs through the issuance of CP under each of their revolving credit facilities (RCFs), all of which expire in
Liquidity is also available to PSCo, NSP-Minnesota and SPS through participation in an intercompany money pool. Borrowing limits are set at
Xcel and its utility subsidiaries require modest cash on hand. Xcel had
Xcel and its subsidiaries have manageable long-term debt maturity schedules over the next five years. NSP-Minnesota has
Issuer Profile
NSP-Minnesota is a regulated integrated electric and natural gas distribution utility that serves approximately 1.5 million electric customers and 0.5 million natural gas customers primarily in
Summary of Financial Adjustments
No financial statement adjustments were made that depart materially from those contained in the published financial statements of the relevant rated entities.
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
Entity / Debt
Rating
Northern States Power Company-Minnesota
senior secured
LT
A+
New Rating
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Additional information is available on www.fitchratings.com
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