Arizona Public Service Co.’s Sr. Unsecured Bonds Secure ‘A-‘ Rating from Fitch
Fitch Ratings has assigned an ‘A-‘ rating to the issuance of senior notes by Arizona Public Service Company (APS). The senior unsecured notes rank equally with the company’s existing senior unsecured debt and will be utilized to pay down short-term CP borrowings and support general corporate purposes, including planned capital expenditures. The Negative Rating Outlook reflects the challenging regulatory environment in Arizona and the possibility of a worse-than-expected outcome in APS’s 2022 General Rate Case.
Key factors supporting APS’s rating include the expectation for a reasonable outcome in its pending rate case and the positive resolution of its appeal regarding a previous rate case. APS has also demonstrated a commitment to clean energy goals, with plans to achieve 100% clean, carbon-free electricity by 2050.
Despite the uncertainties in the regulatory environment and the moderately negative free cash flow expected in the near term, Fitch projects APS’s financial leverage to remain manageable. The company’s large capital expenditure program, primarily focused on renewable energy and grid modernization, is expected to drive rate base growth and support its credit quality.
However, any adverse outcomes in the pending rate case or a sustained deterioration in the regulatory environment could lead to negative rating actions. On the other hand, a reasonable outcome in the rate case and improvements in the regulatory compact could stabilize or potentially upgrade APS’s ratings.
APS’s liquidity position is deemed adequate, with available liquidity under credit facilities and a new $1.25 billion credit facility recently established. The company’s long-term debt maturities are minimal in the next five years, and Fitch expects them to be refinanced as needed.
Overall, APS’s credit profile is comparable to other utilities operating in single-state jurisdictions, although the challenging regulatory environment in Arizona presents a notable difference.
