Fitch to upgrade Oncor debt rating and hold NextEra Energy’s rating stable after merger
Written By: Stratton Report
August 1, 2016
On August 1, Fitch Ratings announced that following NextEra Energy, Inc.’s acquisition of 100% of the equity of reorganized Energy Future Holdings Corp, the company’s long-term issuer default rating remained at ‘A-‘.
Per Fitch, NextEra plans to fund the $9.5 billion acquisition of EFH through a combination of $1.5 billion of equity units, cash on hand and debt. NextEra is a frequent issuer of equity units, which have a three-year conversion period.
It is Fitch’s expectation that NextEra’s funding mix for EFH’s acquisition and other capital commitments would be such so as to achieve the 4.0x FFO adjusted leverage ratio by 2019.
Fitch stressed that the acquisition of Oncor improved the business profile for NextEra by driving up the proportion of regulated utilities mix to 66% in 2017 from 59% in 2015. The addition of Oncor diversifies the regulated earnings for NextEra across two strong state jurisdictions of Florida and Texas, both of which are growing above national average.
Fitch Ratings has also placed the issuer default rating of Oncor Electric Delivery Company LLC’s on Rating Watch Positive following the merger announcement.
The acquisition, when completed, will finally resolve the drawn-out bankruptcy proceedings for Oncor’s indirect parent holding companies as well as eliminate the significant amount of debt above Oncor.
The rating agency has been constraining Oncor’s IDR by one-notch compared to its peer electric T&D utilities in Texas, and the notching of the senior secured debt at Oncor has been further constrained to reflect ownership by a distressed parent. Fitch sees lifting of these constraints under the ownership of NextEra. After the transaction is completed, Oncor will become a subsidiary of NextEra.