CenterPoint Energy Inc. And Subsidiaries Ratings Lowered To 'BBB+' From 'A-'; Outlook Stable

  • CenterPoint Energy Inc. (CPE) is expected to close on its $8.5 billion acquisition of Indiana-based Vectren Corp. after receiving regulatory approvals from the Indiana Utility Regulatory Commission (IURC) and the Public Utilities Commission of Ohio (PUCO). After reviewing the orders, we believe CPE will close on its acquisition of Vectren.
  • S&P Global Ratings lowered its issuer credit rating (ICR) on CPE to 'BBB+' from 'A-' and lowered the ratings on the senior unsecured and subordinated notes to 'BBB' from 'BBB+'. We lowered the rating on the company's preferred stock rating to 'BBB-' from 'BBB'. We removed the ratings from CreditWatch, where we placed them with negative implications on October 3, 2018. The outlook is stable.
  • We affirmed our 'A' rating on CPE's senior secured notes. The recovery rating remains '1+'.
  • We lowered our ICRs on CPE subsidiaries CenterPoint Energy Houston Electric LLC (CEHE) and CenterPoint Energy Resources Corp. (CERC) to 'BBB+' from 'A-' and removed the ratings from CreditWatch. The outlook is stable. We affirmed the 'A' rating on CEHE's first and general mortgage bonds; the recovery rating is '1+'. In addition, we lowered the rating on CERC's senior unsecured debt to 'BBB+' from 'A-'. We also affirmed the 'A-2' short-term and commercial paper ratings on CPE and CERC.
  • Although CPE's utility operations should strengthen after the acquisition, the addition of Vectren's construction businesses will increase the risk profile of the company's non-utility operations. CPE already is in a joint venture in higher-risk Enable Midstream Partners L.P. and has an energy services business, a natural gas marketer.
  • The stable outlook reflects our expectation of consistency in the projected mix of utility and non-utility businesses, steady regulatory support, and stable financial measures for the consolidated company that will consistently be below the midpoint of the range for the significant financial risk profile category, with adjusted funds from operations (FFO) to debt in the 14%-16% range.
NEW YORK (S&P Global Ratings) Feb. 1, 2019-- S&P Global Ratings today took the 
rating actions listed above. We expect CPE to complete its $8.5 billion 
acquisition of Vectren and its subsidiaries intermediate holding company 
Vectren Utility Holdings Inc. (VUHI) and operating utilities Southern Indiana 
Gas and Electric Co. (SIGECO) and Indiana Gas Co. Inc. This follows regulatory 
orders from the IURC and the PUCO approving the acquisition.

The stable outlook on CPE and its subsidiaries reflects our expectation of 
stable financial measures for the consolidated company, consistency in the 
projected mix of utility and non-utility businesses, and steady regulatory 
support. Our baseline forecast for 2019 and 2020 includes adjusted FFO to debt 
in the 14%-16% range.

We could lower ratings on CPE over the next two years if the company's 
financial measures materially weaken such that FFO to debt is consistently 
below 13%. This could occur if the company's ability to effectively manage 
regulatory risk weakens or if the costs of large projects rises. Although we 
don't consider it likely, we could lower ratings if business risk were to 
materially increase.

We could raise ratings on CPE over the next two years if financial measures 
improve, with FFO to debt that is consistently greater than 18%, without a 
material increase in business risk. This could occur if CPE would delever the 
capital structure over the next two years while undertaking its capital 
spending plans.

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