Nov 16 - Fitch Ratings has assigned ratings of 'BBB' to NextEra Energy
Capital Holdings Inc.'s (Capital Holdings) issue of $500 million 5.125%
Series I junior subordinated debentures due Nov. 15, 2072. The debentures will
be unconditionally and irrevocably guaranteed by NextEra Energy, Inc. (NEE). The
net proceeds from this issue along with other general funds will be used to
repay a portion of Capital Holdings' outstanding commercial paper obligations
(which stood at $1.27 billion as of Nov. 13, 2012) and for general corporate
purposes. The Issuer Default Rating (IDR) of NEE and Capital Holdings is 'A-',
and the Rating Outlook for both is Stable.
The debentures are junior and subordinated in right of payment and upon
liquidation to all of Capital Holdings' senior indebtedness. The junior
subordinated guarantee from NEE is unsecured, will rank junior, and will be
subordinated in right of payment and upon liquidation to all of NEE's senior
indebtedness. So long as there is no event of default under the subordinated
indenture, Capital Holdings may defer interest payments on the debentures on one
or more occasions for up to 10 consecutive years per deferral period.
The securities are eligible for 50% equity credit under Fitch Ratings'
applicable criteria 'Treatment and Notching of Hybrids in Nonfinancial Corporate
and REIT Credit Analysis' dated Dec. 15, 2011. Features supporting the equity
categorization of these debentures include their junior subordinate priority,
the option to defer interest payments on a cumulative basis for up to 10 years
on each occasion and a 60-year maturity.
NEE's ratings are supported by sound liquidity and satisfactory cash flow from
two businesses: its utility subsidiary Florida Power & Light (FPL) and Capital
Holdings' non-regulated energy subsidiary, NextEra Energy Resources (Energy
Resources). NEE's ratings reflect a shifting business mix through 2015 towards
regulated and highly contracted cash flows driven by significant rate base
growth opportunities at FPL, completion of regulated Lone Star transmission line
in 2013, weak wholesale prices that reduces the contribution of non-contracted
generation assets, and rising contribution from solar and Canadian wind
investments that partially offset the decline in U.S. wind investments due to
the 2012 expiration of tax subsidies.
Over 2012 - 15, NEE's cash flows from stable utility-type sources are expected
to grow. At FPL, recovering retail sales and future rate cases to incorporate
new rate base investments will produce revenue uplift. At Capital Holdings,
completion of new Texas electric transmission assets will result in predictable
tariff revenues. Fitch forecasts that regulated businesses will contribute more
than 55% of NEE's EBITDA for the next several years. Within Energy Resources,
the contribution of long-term contracted generation assets will increase. Fitch
expects contractual sources to drive another 25 - 30% of NEE's consolidated
EBITDA over the next few years.
NEE's credit metrics, as reported, show more leverage than 'A-' peers. However,
Fitch considers several factors that mitigate debt leverage. First, sales at
Energy Resources are supported by off-take contracts for a longer term than most
other peers (over 90% hedged over 2012 - 13). This provides NEE with greater
insulation to commodity price movements as compared to other hybrid peers.
Second, NEE's non-utility generation is concentrated in renewable and nuclear
resources with favorable environmental characteristics. Finally, about $5.7
billion of consolidated debt (as of Dec. 31, 2011) is made up of project finance
loans that have limited or no corporate recourse.
Fitch's adjusted consolidated credit metrics for NEE incorporates off-credit
treatment to limited recourse debt at Energy Resources. This reflects Fitch's
assumption that NEE would walk away from these projects in the event of
financial deterioration, including those projects where a differential
membership interest has been sold. Fitch accordingly excludes the debt, interest
expense, EBITDA contribution and tax attributes from such projects and includes
only the distributable cash flow.
What Could Trigger a Rating Action
Deterioration in Florida Regulation: Any change in current regulatory policies
at the Florida Public Service Commission (FPSC) or adverse outcome in the
pending rate case at FPL would adversely affect NEE's and FPL's ratings.
Increase in Business Risk Profile: A change in strategy to invest in more
speculative assets, non-contracted renewable assets or a lower proportion of
cash flow under long-term contracts would increase business risk and could
result in lower ratings for NEE. The high level of capital expenditures at both
FPL and Capital Holdings creates completion risks, as well as funding risk.
Aggressive Financial Strategy: Any deterioration in credit measures that result
from higher use of leverage or outsized return of capital to shareholders could
lead to negative rating actions.
Change in Tax Laws or Regulations: Changes in tax rules that reduce NEE's
ability to monetize its accumulated production tax credits, investment tax
credits, and accumulated tax losses carried forward would be adverse to NEE's
cash flow credit measures.
Positive Rating Actions Unlikely: Positive rating actions for NEE and Capital
Holdings appear unlikely at this time.
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:
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers'
(Nov. 13, 2012);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
(Dec. 15, 2011).
Applicable Criteria and Related Research:
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit