Zacks_Analysts' Blog : Xcel's Notes Get BBB+ from Fitch - Analyst Blog

Electricity and natural gas company Xcel Energy Inc. (XEL) issued $250 million unsecured notes yielding 4.8% interest per year and maturing on September 15, 2041. Fitch Rating assigned a "BBB+" rating for the new note offering with a stable outlook.

The agency considered the company’s strong cash flow generation capability, favorable credit profile, conservative capital structure and financing plans besides assuming positive outcome from a few rate cases, while providing the rating. However, the agency seems to be a little concerned about the capital expenditure program of Xcel that allocates $2.6 billion per year for this purpose through 2015.

The company intends to use the proceeds of the issue to repay short-term borrowings and for general corporate purposes. The new issue will rank pari passu with all existing and future unsecured debt.

Excel Energy has from time to time issued debt and equity to refinance debts, fund operations and for other general corporate purposes. The current issue is integral to the company’s plan, announced during the second-quarter earnings release, of raising $450 million through issue of bonds and unsecured notes in the third quarter of 2011.

The company had outstanding long-term debts of $9.3 billion as of June 30, 2011, versus $8.4 billion as of June 30, 2010. The debt-to-capitalization ratio at the end of the second quarter was 44.3%. With the new issuance, the debt-to-capitalization ratio of the company increased to 46.1%.

Interest expenses of the company in the second quarter 2011 rose 3.5% year over year mainly due to higher debt levels. With the issue of new debts, interest expenses of the company will rise further in the coming quarters.

Earlier, in August 2011, the company issued $200 million first mortgage bonds yielding 4.5% interest per year and maturing on August 15, 2041. The company utilized the proceeds to repay short-term borrowings, redeem $57.3 million of its outstanding 5.75% Pollution Control Revenue Refunding Bonds due September 1, 2016 and used the balance for general corporate purposes.

Xcel Energy currently retains a Zacks # 2 Rank, which translates into a short-term Buy rating. The company competes with American Electric Power Co. (AEP).

Based in Minneapolis, Minnesota, Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states.