Fitch Ratings upgraded Otter Tail Power Co.'s short-term issuer default rating to F2 from F3 and removed it from "Under Criteria Observation."
The rating agency also affirmed Otter Tail Power's long-term issuer default rating, or IDR, at BBB, and parent company Otter Tail Corp.'s long-term IDR at BBB- and short-term IDR at F3. The outlook on all the rating actions is stable.
Otter Tail Power's rating upgrade is based on its financial flexibility. The company comprises 68% of Otter Tail Corp.'s 12-month consolidated earnings before interest, taxes, depreciation, amortization and rent/restructuring, ending June 30. Recently, the contribution of earnings from Otter Tail Corp.'s nonregulated operations has increased due to the positive impacts of tax reform and increased sales at its PVC pipe and metal fabrication manufacturing businesses.
The rating affirmations reflect both Otter Tail Corp. and its subsidiary's strong performance in the regulated and manufacturing businesses, Fitch said.
"[Otter Tail Corp.'s] current IDR of 'BBB-' takes into consideration the company's business mix including a small regulated electric utility serving a rural service territory and two relatively small manufacturing industrial business segments that operate in fragmented, competitive markets," Fitch said in a Sept. 5 rating action. "Due to the risks inherent in the diversified business portfolio, Fitch rates [Otter Tail Corp.] one notch below its regulated subsidiary [Otter Tail Power]."
