Fitch assigns a rating of 'A' to the $600 million of floating rate notes (FRNs) to be issued by Southern Company (Southern). The maturity date of the new notes is Aug. 20, 2010 and the interest rate is LIBOR + 0.70%. The notes are unsecured and rank equally with existing and future unsecured notes of Southern. The proceeds will be used to reduce a portion of short term debt, which totaled $639 million as of Aug.12, 2008. The Rating Outlook is Stable.
Southern's primary rating strengths include: constructive state regulation, low business risk, above-average growth of economically vibrant territories and strong performance of the mainly coal and nuclear-based capacity. In addition, Southern and its subsidiaries have strong liquidity and long-dated debt maturities. The stability of cash flows and timeliness of cost recovery at the utility subsidiaries are supported by numerous annual tariff adjustment mechanisms. No base rate filings for any of the four utilities are expected to be necessary for several years, which limits regulatory risk. Alabama Power and Mississippi Power have annual base rate adjustment mechanisms that are formula-based.
Rating concerns for the Southern group include: weakening of consolidated ratio trends as a result of relatively high capital spending and cost recovery lags; risks of delays in recovery or under-recovery of operating costs or capital projects; emissions-related risks, such as stricter laws or adverse legal outcomes; and the location of service territories in hurricane-prone regions. While coal is a relatively low-cost fuel compared to natural gas, and currently helps keep the Southern operating companies' rates low relative to the national average, the effect of any carbon legislation cannot be predicted. More stringent rules could result in significant capital spending requirements and have the potential to adversely affect regulatory relations.
Southern is a holding company that owns four electric utilities: Alabama Power Co.; Georgia Power Co.; Gulf Power Co.; and Mississippi Power Co. The utilities collectively provide service to more than 4.3 million retail customers. Southern also owns a competitive generation business, Southern Power Co.
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Contacts:
Sharon Bonelli, +1-212-908-0581 (New York)
Karen
Anderson, +1-312-368-3165 (Chicago)
Media Relations:
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Stoller, +1-212-908-0526 (New York)
