Today 10:05 AM ET (Business Wire)
Nextera Energy Inc.'s (NEE) decision to form a growth oriented limited
partnership, Nextera Energy Partners, LP (NEP), has no impact on NEE's
ratings in the near term, according to Fitch Ratings. Fitch currently
rates NEE 'A-' with a Stable Rating Outlook.
NEE's decision to pursue a publicly listed, yield driven and growth
oriented vehicle is not unexpected given considerable investor interest
following the successful performance of NRG Yield (not rated). Besides
providing an obvious cost of capital advantage to NEE, the formation of
NEP provides the company with an alternate source of capital to recycle
its investments in Nextera Energy Resources (Energy Resources). Energy
Resources is NEE's indirect, wholly owned subsidiary that owns
predominantly contracted, non-regulated power generation assets. In
Fitch's view, the formation of NEP also provides greater visibility to
investors in monitoring the residual cash distributions generated by a
portion of the Energy Resources portfolio that help service holding
company debt.
The formation of NEP also raises several credit concerns with the
primary one relating to the potential conflict of interest that may
arise between NEE's investors and NEP's unitholders and how will
management handle it. During the first three years, NEP is targeting a
12% - 15% growth rate in cash available for distributions, which will
require a steady pace of sell-downs from Energy Resources' portfolio
that raises questions regarding the valuation of those assets and the
quality of assets left behind at Energy Resources. A conflict committee
composed of three independent directors (currently two are nominated)
will help partially mitigate this concern.
Another concern relates to any potential changes to NEE's growth
strategy. NEE's current portfolio of long-term contracted assets
combined with its development pipeline of new wind and solar projects
creates a transparent pipeline of additional sell downs to NEP without
the need to chase acquisitions. As NEP gets larger, managing a high
growth in cash distributions will get harder and potentially require a
more aggressive and/or acquisitive management stance in expanding the
asset portfolio. Furthermore, NEE will receive an Incentive Distribution
Fee if NEP is able to achieve certain targeted quarterly distribution to
its unit holders (these levels will be determined as part of the IPO),
which creates further incentive for management to pursue higher growth
to hit those targets. There is expected to be no debt at NEP initially
except for a $250 million revolving credit facility. Future debt
issuances at NEP would result in further subordination of cash flows to
NEE.
At present, Fitch views the formation of NEP as neutral to NEE's credit.
The small size of NEP and contemplated pace of sell downs does not alter
the business mix of Energy Resources or NEE in any meaningful way. Fitch
expects NEE to use a portion of the sale proceeds for holding company
debt reduction. In its public comments, management has reinforced its
commitment to credit ratings, and Fitch expects NEE to meet the targeted
credit metrics on a pro forma basis. As NEP grows larger and if NEE's
ownership is progressively reduced, Fitch could take a more conservative
view of evaluating the cash distributions from NEP relative to other
sources of funds to service holding company debt. Fitch will continue to
monitor management's strategy and an aggressive acquisition or financial
strategy, rising conflict of interest between NEE and NEP, or
predominantly shareholder focused use of sell down proceeds will have
negative implications for NEE's credit.
NEP will initially own a portfolio of 10 wind and solar assets with a
generating capacity of 990 MW. One of the projects is still under
construction (59.9 MW) while the rest achieved commercial operation
between 2009 - 1Q2014. All of the projects have long-term contracts with
creditworthy counterparty with an average contract life of 21 years. NEE
intends to sell-down a portion of its ownership in NEP to public through
an IPO and will own a general partner interest in NEP through an
affiliate. NEE has committed to provide a right of first offer (ROFO) to
NEP over a six-year period for additional 1,549 MW of wind and solar
assets. These assets are also either in development or newly constructed
and have long-term contracts.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
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RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.
http://cts.businesswire.com/ct/CT?id=bwnews&sty=20140528006110r1&sid=cmtx6&distro=nx
SOURCE: Fitch Ratings
Fitch Ratings Primary Analyst Shalini Mahajan, CFA, +1-212-908-0351 Senior Director Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 or Secondary Analyst Glen Grabelsky, +1-212-908-0577 Managing Director or Media Relations Brian Bertsch, New York, +1-212-908-0549 brian.bertsch@fitchratings.com |
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