Fitch Affirms Southwest Gas Corp.'s IDR at 'BBB'; Outlook Stable

2009-04-29 22:34:03 -

Fitch Ratings has affirmed Southwest Gas Corp.'s (SWX) and Southwest Gas Capital II's ratings as follows.

SWX


--Long-term Issuer Default Rating (IDR) at 'BBB';

--Senior unsecured rating at 'BBB';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

Southwest Gas Capital II


--Trust securities at 'BBB-'.

The Rating Outlook is Stable.

SWX's ratings reflect the stable cash flow generated by the company's gas distribution utility. The ratings also recognize the operating, regulatory, and financial characteristics associated with SWX's dynamic service territory. In recent years the company has made timely general rate case filings in all three jurisdictions and has recently received favorable rate increases in Arizona and California.

Growth in SWX's service territories has slowed significantly as a result of the recessionary economy. Despite the general economic malaise, SWX has managed to grow it customer base if only slightly. SWX recently reached a rate case settlement in California, with new rates effective January 2009. Additionally, regulators issued an order authorizing a $33.5 million annualized rate increase in Arizona effective December 2008. Marginal customer growth coupled with these recent rate increases and a reasonable outcome of its pending case in Nevada should allow SWX's credit measures to remain relatively stable over the next three years. During this time, Fitch expects EBITDA/interest coverage and debt-to-EBITDA to average approximately 4.3 times (x) and 3.4x, respectively. Fitch expects SWX customer growth to remain flat to slightly positive over the next several years.

Fitch notes that SWX's credit measures can be affected over the short term due to the recovery lag associated with gas supply acquisitions.

Gas costs that are incurred in excess of amounts embedded in customer rates are generally deferred and recovered under purchase gas adjustments (PGAs). The company uses its bank lines for borrowings to fund gas purchases. In periods of under-recovery, there may be some near-term negative effect on coverage ratios and capital structure.

SWX serves over 1.8 million customers in Arizona, Nevada and California including the major metropolitan areas of Las Vegas, Phoenix and Tucson.

SWX also owns Paiute Pipeline, an intrastate gas pipeline in northern Nevada, and Northern Pipeline Construction Co., a wholly owned construction subsidiary.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .

Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.



Fitch Ratings, New YorkPeter Molica, 212-908-0288Ralph
Pellecchia, 212-908-0586orMedia Relations:Cindy
Stoller, 212-908-0526Email: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com