Fitch Ratings said Jan. 14 that it has assigned a rating of ‘BBB+’ to Black Hills Corp.’s (BKH) issuance of $550 million of senior unsecured notes, which substantially completes BKH’s permanent acquisition financing needs.
The debt issuance is comprised of two tranches including $250 million of 2.5% three-year senior notes due Jan. 11, 2019, and $300 million of 3.95% 10-year notes due Jan. 15, 2026. Fitch has also placed BKH’s senior notes on Rating Watch Negative.
Proceeds will be used to help finance BKH’s acquisition of SourceGas Holdings LLC (SGH) from investment funds managed by Alinda Capital Partners and GE Energy Financial Services for approximately $1.89 billion.
BKH’s ‘BBB+’ Issuer Default Rating (IDR) remains on Rating Watch Negative. Fitch will resolve the Negative Watch concurrent with or close to the completion of the acquisition. Fitch expects the acquisition to close in the first quarter.
The Negative Watch for BKH reflects a material increase in consolidated leverage partially offset by an increased scale of utility operations and higher regulated mix in overall earnings and cash flows. Fitch noted that BKH is currently evaluating the sale of up to a 49.9% interest in a 200-MW natural gas-fired power plant from its independent power portfolio, the proceeds from which would be used to complete acquisition financing needs.
BKH plans to spend $1.3 billion on capex through 2017 with $357 million spent as of Sept. 30, roughly 15% higher than the preceding three-year period, Fitch reported. Approximately $308 million or 24% of that amount is eligible for timely recovery under recovery mechanisms. Capex will be primarily focused on new generation, transmission and distribution investments at the electric and gas utilities.
Due to looming regulations under the EPA’s CO2-reducing Clean Power Plan, future electric generation needs are likely to be focused on new natural gas-fired plants and on small-scale wind and solar projects. Capex at the gas utilities is primarily centered on pipeline replacement programs, typically subject to automatic recovery mechanisms.
Fitch said that now that the 132-MW gas-fired Cheyenne Prairie Generating Station power plant has entered service, the major generation projects include the $109 million 60-MW Peak View wind project and the $65 million 40-MW simple-cycle natural gas-fired plant at Colorado Electric, both of which have scheduled in-service dates this year.