NSI.PR.D on Review-Negative by S&P

As mentioned in the post EMA Outlook-Negative by S&P; Review-Developing by DBRS, Emera’s Canadian subsidiary Nova Scotia Power has been put on Outlook-Negative by S&P:

  • •On Sept. 4, Emera announced the US$10.4 billion proposed acquisition of TECO Energy, a Florida-based holding company that wholly owns regulated utilities Tampa Electric Co. and New Mexico Gas Co.
  • •The proposed acquisition is partly being financed with the issuance of convertible debentures, and the additional debt load pushes Emera’s adjusted funds from operations-to-debt ratio to below 11%, the downgrade trigger.
  • •As a result of the financing risk associated with this large acquisition that will double the size of the company, we are revising our outlook on Emera and its Canadian subsidiary Nova Scotia Power Inc. to negative from stable.
  • •We are also revising the financial risk profile to “aggressive” from “significant”. The business risk of the consolidated entity post acquisition remains “excellent”.
  • •We are affirming all ratings on Emera and NSPI, including our ‘BBB+’ long-term corporate credit ratings.

The negative outlooks on Emera and NSPI reflect the financing risk associated with this large acquisition and our expectation that the consolidated pro forma credit metrics will materially weaken due to the C$1.9 billion convertible debenture issuance to finance, in part, the purchase of TECO Energy.

Although we expect that the debentures have a high likelihood of conversion due to several factors including no interest after acquisition close, targeted sale to institutions that would be buyers of Emera equity, not debt), in the meantime credit metrics are expected to be below 11%. If conversion does not occur as expected and metrics remain below 11%, we could lower the ratings on Emera and NSPI.

We could revise our outlook to stable within our two-year outlook period if we expect consolidated AFFO-to-debt to be sustained comfortably above 11%, all else being equal. This could occur if the debentures are successfully converted.

The DBRS announcement regarding Emera made no mention of Nova Scotia Power.

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