Emera Inc. And TECO Downgraded On Weak Financials, Outlook Stable; Subsidiaries Ratings Affirmed

  • Halifax, Nova Scotia-based utility holding company Emera Inc. has closed on the sale of its Emera Maine subsidiary to ENMAX Corp.
  • Although we expect the sale to improve Emera Inc.'s consolidated financial measures in the near term, the transaction does not fully mitigate other factors that weigh on the company's credit quality, including our expectation that the company's funds from operation (FFO) to debt will be consistently above 12%.
  • As a result, we no longer expect Emera to maintain its financial measures at the upper end of its financial risk category, removing support for our use of a positive comparable ratings analysis modifier.
  • Therefore, we are lowering our issuer credit rating on Emera to 'BBB' from 'BBB+'. The outlook is stable.
  • At the same time, we are lowering the senior unsecured debt rating to 'BBB-' from 'BBB', subordinated notes rating to 'BB+' from 'BBB-', and preferred shares rating to 'BB+' from 'BBB-' on the global scale and to 'P-3 (High)' from 'P-2 (Low)' on the Canada National Scale ratings.
  • We are also downgrading intermediate holding company TECO Energy Inc. (TECO) and financing company TECO Finance Inc. to 'BBB' from 'BBB+'.
  • We also reviewed our ratings on operating subsidiaries Nova Scotia Power Inc. (NSPI) and Tampa Electric Co. (TEC) and conclude that the cumulative value of the structural protections in place between these two operating companies and parent Emera are sufficient to insulate our issuer credit rating on both entities for up to one notch from the group credit profile of parent Emera.
  • As such, we are affirming our ratings on NSPI and TEC, including the 'BBB+' issuer credit ratings.
  • For NSPI, we are affirming the A-1 (Low) Canadian National Scale Commercial Paper Ratings.
  • For TEC, are affirming the 'A-2' short-term ratings.
  • The stable outlook on all these entities largely reflects our expectation that Emera will maintain its financial measures, including FFO to debt at about 11% over the next two years.
TORONTO (S&P Global Ratings) March 24, 2020--S&P Global Ratings today took the rating actions listed above.
The ratings downgrade on Emera and TECO reflects the parent company's credit metrics.  Although Emera showed a modest improvement in 2019 with funds from operation (FFO) to debt of about 11%, they fall short of our previous expectation and downside trigger of 12%, which no longer warrants the use of the positive CRA modifier, which was based upon Emera maintaining its financial measures at the upper end of the range for its financial risk profile category.
The stable outlooks on Emera and TECO Energy reflect our expectation that Emera will maintain its financial measures during our two-year outlook period with FFO to debt of about 11% in 2020 and 2021. The stable outlook also reflects our view that the company will continue to focus on its low-risk regulated utility operations, with no weakening of its regulatory risk management.
We could downgrade Emera over the next 12-24 months if the company's financial measures deteriorates with FFO to debt of below 10% with no prospect for improvement. This could happen if there are material adverse regulatory outcomes, a material delay in the completion of capital projects, or if the COVID-19 pandemic persists and has a material long-term impact on the company's financial measures.
We could raise ratings on Emera if its financial measures improve with FFO to debt approaching 13% on a sustained basis, indicative of the higher end of the financial risk profile category.
The stable outlook on Nova Scotia Power Inc. (NSPI) in part reflects our outlook on Emera. In addition, the outlook reflects our view that NSPI will continue to generate stable cash flow and maintain FFO to debt of about 13% during our two-year outlook period. Furthermore, the stable outlook on NSPI assumes no change to the current insulation between NSPI and Emera.
We could lower the ratings on NSPI over the next 12 to 24 months if the utility's financial measures deteriorate with FFO to debt consistently below 12%. We could also lower the rating on NSPI if we lower our ratings on Emera.
Although unlikely, we could raise our ratings on NSPI over our outlook period if we raise our rating on Emera, and at the same time, NSPI's FFO to debt is consistently above 15%.
The stable outlook on Tampa Electric Co. (TEC) in part reflects our outlook on Emera. In addition, the outlook reflects our view that TEC will continue to generate stable cash flow and maintain FFO to debt of about 20%-22% during our two-year outlook period. Furthermore, the stable outlook on TEC also assumes no change to the current insulation provisions between TEC and Emera.
We could lower our ratings on TEC over the next 12 to 24 months if we lower our ratings on Emera. Although unlikely, we could also downgrade TEC if there is a multiple notch weakening to the company's stand-alone credit profile, such that TEC's FFO to debt deteriorates and is consistently below 12%.
We could raise our ratings on TEC over our outlook period if we raise the ratings on Emera, which could happen if Emera's financial measures improves with FFO to debt approaching 13%.
Emera Inc. is a diversified electric and natural gas utility holding company that serves more than 2.5 million customers across the U.S. (Florida and New Mexico), Canada (Nova Scotia), and the islands of Barbados, Bahamas, Dominica and St. Lucia.
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