Fitch Affirms TECO Energy and Tampa Electric's Ratings; Outlook Stable

Fitch Ratings has affirmed the Issuer Default Rating (IDR) of TECO Energy, Inc. (TECO) and its fully guaranteed finance subsidiary, TECO Finance at 'BBB'. Fitch has also affirmed the IDR of Tampa Electric Company, Inc. (Tampa Electric) at 'BBB+'. The Rating Outlook is Stable. A full list of ratings affected by today's action is included at the end of this release.

TECO's ratings are supported by its solid credit metrics and the consistent financial performance of its regulated utility subsidiary Tampa Electric which provides over 80% of consolidated operating EBITDA. TECO's financial results have improved steadily in recent years with significant debt reduction and stronger cash flow generation at the utilities due to higher base rates that went into effect in 2009 and 2010.

The company has spent the better part of the last decade in debt reduction mode as it has focused on its core Florida utilities and completed sales of various unregulated operations. Through the recession, the focus has also been on tightly managing costs at the utility to maintain financial performance. While there remains some opportunity for asset monetization, Fitch believes significant further debt reduction is unlikely in favor of more shareholder-friendly actions.

Remaining exposure to unregulated operations is manageable in Fitch's view. Most significantly, TECO Coal (Coal) has been a consistent source of earnings and cash flow which has provided modest dividend and parent level debt service support. Fitch expects Coal to be pressured beginning in 2013 by weak domestic demand for steam coal for electric generation and potential uncertainty around global demand for metallurgical coal. The current ratings and outlook incorporate Fitch's expectation that despite potentially weaker cash flows from this business, consolidated credit metrics will remain in line with the rating category. This is driven both by the headroom in current metrics and Coal's relatively small overall contribution at approximately 14% of consolidated EBITDA.

Consolidated leverage, as measured by debt to operating EBITDA, continued to improve through the year ended Dec. 31, 2011 to 3.24 times (x). Interest coverage also continues to show improvement due to both debt reduction and strategic refinancing efforts over the past 12 - 18 months.

Fitch projects credit metrics to remain consistent with current levels over the next three years given the view that credit improvement has likely reached a plateau. Fitch expects the company to be free cash flow positive in the near term, with some modest external financing needs beginning in 2014 as construction ramps up on the potential conversion of gas-fired peaking units at the Polk Power Station to combined cycle. Fitch projects consolidated debt to EBITDA will remain in the 3.2x-3.4x range while EBITDA interest cover will remain healthy at 4.75x-5.5x.

Fitch also expects Tampa Electric's financial performance and credit metrics to remain strong as a result of the higher base rates and continuing control of operations and maintenance costs. For the year ended Dec. 31, 2011, Tampa Electric posted strong results, with operating EBITDA-to-interest of 5.57x and debt-to-operating EBITDA of 2.53x. Again, as capex ramps up in 2014 Fitch would expect some modest weakening of credit metrics pending the combined cycle going into service. Fitch projects key credit metrics to remain in line with the rating category.

Further supporting the ratings of Tampa Electric is the constructive regulatory environment in Florida which Fitch considers supportive of utility credit quality. Key features of the regulatory construct include annual rate adjustments for fuel and environmental compliance costs. Tampa Electric is expected to earn within its authorized return on equity range for the next several years and no new base rate case is considered likely.

Fitch's primary credit concerns remain related to the slow pace of economic recovery in Tampa Electric's service territory and its impact on load trends. While there are signs of stabilization, a rebound in load growth remains uncertain as is the timing of future capital expenses for incremental generation.

Fitch considers TECO and Tampa Electric's liquidity position to be strong relative to its business risk profile and working capital needs. Credit facilities include a $325 million five-year facility and a $150 million one year receivables facility at Tampa Electric and a $200 million five-year facility at TECO Finance (guaranteed by TECO). Both of the five-year facilities expire in 2016. Debt maturities are also considered manageable. The utilities have a combined $375 million maturing in 2012 while the next significant maturity at the parent is in 2015 when $191 million of senior notes mature.

Fitch affirms the following ratings:

TECO Energy

--Long-term IDR at 'BBB';

--Short-term IDR at 'F2';

--Senior unsecured at 'BBB'.

TECO Finance

--Long-term IDR at 'BBB';

--Short-term IDR at 'F2';

--Senior unsecured at 'BBB'.

Tampa Electric Company

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Commercial paper at 'F2';

--Senior unsecured and pollution control revenue bonds at 'A-';

--Hillsborough County Industrial Development Authority (Tampa Electric Company Project) pollution control revenue refunding bonds series 2002, 2006, 2007A, 2007B, and 2007C at 'A-';

--Polk County Industrial Development Authority (Tampa Electric Company Project) solid waste disposal facility revenue refunding bonds series 2010 at 'A-'.

The Rating Outlook for all ratings is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 12, 2011;

--'Recovery Ratings and Notching Criteria for Utilities', Aug. 12, 2011;

--'Parent and Subsidiary Rating Linkage', Aug. 12, 2011.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648449

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

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