NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to NextEra Energy Capital Holdings' (Capital Holdings) $500 million 2.30% debentures due April 1, 2019. The current Issuer Default Rating (IDR) for Capital Holdings and for its parent, NextEra Energy, Inc. (NextEra) is 'A-', and the Rating Outlook for both entities is Stable. NextEra provides full guarantee of Capital Holdings' debt.
The debentures are absolutely, irrevocably and unconditionally guaranteed by NextEra. The guarantee is an unsecured obligation of NextEra and will rank equally and rateably with all other unsecured and unsubordinated obligations of NextEra. NextEra plans to use the issuance for general corporate purposes.
KEY RATING DRIVERS
Growing Regulated and Contracted Assets: The ratings for NextEra reflect a continued shift in business mix toward regulated and highly contracted assets that comprise approximately 85% of adjusted EBITDA. Base rate increases at Florida Power and Light Co. (FPL), rising contributions from contracted renewable projects, and investments in regulated natural gas transmission are driving this favorable shift.
Focus on Rate Case: On March 15, 2016, FPL filed with the Florida Public Service Commission for a roughly $1.3 billion rate base increase over 2017-2019 based upon an 11.5% return on equity (ROE). New rates would take effect on Jan. 1, 2017. Fitch views the Florida regulatory environment as constructive and FPL has managed to secure several favorable regulatory decisions including approval to invest up to $500 million each year in natural gas reserve projects and permission to acquire and then retire the Cedar Bay facility.
Recovering Florida Economy: Florida's economy is recovering well with most key indicators such as housing starts, employment statistics and consumer sentiment on an upward trend. However, customer usage has been volatile and below historical levels, reflecting energy efficiency trends and demand-side management initiatives. Adjusted for weather, FPL's retail kilowatt hour sales grew 1.2% in 2015, driven by 1.5% customer growth offset by 0.3% drop in underlying usage. Fitch's financial forecasts for FPL are based on a 1% cumulative annual growth rate in retail sales over 2016-2018, primarily driven by customer growth; any upside in sales growth would be positive for FPL's credit metrics.
Elevated Capex: NextEra is projecting approximately $17.8 billion in capex over 2016-2018, divided 60%/40% between FPL and Capital Holdings. Fitch sees an upward bias to the capex for contractual renewable generation projects given the robust growth in the backlog for wind and solar projects. Fitch expects a balanced funding mix at FPL and reliance on project debt and tax equity at Capital Holdings.
Challenging Outlook for Yieldcos: Continued limited capital market access for Yieldcos could constrain NextEra's ability to grow NextEra Energy Partners, L.P. (NEP) and recycle its capital into new renewable projects. NEP was able to issue equity in February of approximately $250 million, thus, differentiating itself among other Yieldcos. Nevertheless, access to external capital when needed is by no means assured.
Recovering Credit Metrics: On a fully consolidated basis, Fitch expects NextEra's FFO fixed-charge coverage to be in the 5.5x-6.0x range over the forecast period of 2015-2018. Fitch expects both adjusted debt-to-EBITDAR and adjusted FFO leverage to approximate 3.5x by 2018.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for NextEra include:
--Annual retail sales growth of 1.0% at FPL over 2016-2018;
--Base rate increases at FPL in mid-2016 for Port Everglades. Additional rate increase in 2017 to allow FPL to earn close to its current authorized ROE of 10.5%;
--O&M and other expenses growth at FPL of 1.5% from 2016 to 2018;
--Capex at FPL and Capital Holdings of approximately $18.5 billion over 2016-2018;
--Limited commodity exposure based on existing hedge position.
RATING SENSITIVITIES
Positive Rating Action: Positive rating actions for NextEra appear unlikely at this time.
Negative Rating Action: Future developments that may, individually or collectively, lead to a negative rating action include:
--Failure to achieve adjusted FFO leverage of 3.50x-3.75x by 2017 on a consolidated basis;
--Deterioration in credit measures that result from higher use of leverage or outsized return of capital to shareholders;
--An aggressive acquisitive or financial strategy at NEP or predominantly shareholder-focused use of sell-down proceeds; and
--Change in strategy to invest in non-contracted renewable/pipeline/electric transmission assets, more speculative assets, or a lower proportion of cash flow under long-term contracts.
LIQUIDITY
Liquidity is robust, with $571 million in cash and approximately $7.9 billion available under committed corporate credit facilities for the NextEra group of companies as of Dec. 31, 2015, excluding limited recourse or nonrecourse project financing arrangements. NextEra's ratings reflect the company's strong access to the capital markets, commercial paper market and to banks for both corporate credit and project finance.
Date of Relevant Rating Committee: August 5, 2015
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
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