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
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