Moody’s Investors Service said Jan. 13 that it has downgraded the long-term ratings of Duke Energy (NYSE:DUK) and certain Duke subsidiaries due in part to increased debt levels resulting from the pending acquisition of Piedmont Natural Gas. (NYSE:PNY).
The negative rating action is also driven by the downgrade of one of its two largest utility subsidiaries, Duke Energy Progress; high planned capital spending at the Duke parent company for pipeline, renewable and potentially additional gas infrastructure investments that will lead to additional leverage. Another factor is Duke’s higher risk, more volatile international business, which has underperformed in recent years, Moody’s said.
Duke’s downgrade was expected. In October, Moody’s had placed Duke and several of its companies on review for possible downgrade.
“The downgrade of Duke is prompted by weak consolidated financial metrics, a high level of debt at the Duke holding company, and the pending acquisition of Piedmont Natural Gas Company, Inc. (A2 stable), which will worsen these credit factors” Moody’s Associate Managing Director Michael Haggarty.
“Duke’s CFO pre-working capital to debt could fall below 15% from the high teens and parent company leverage increase to approximately 35% of total consolidated debt from 30% following the acquisition, increasing credit risk,” Haggarty said.
“Although Piedmont is a relatively low risk natural gas utility that will modestly increase the proportion of regulated activities in Duke’s overall business mix, the $7 billion acquisition will be primarily debt financed, increasing the level of risk to Duke bond-holders,” said the Moody’s official.
Duke and Piedmont filed their application for approval with the North Carolina Utilities Commission (NCUC) on Jan. 15. A similar application has also been filed with the Tennessee Regulatory Authority.
Duke also announced Dec. 22 that the Federal Trade Commission (FTC) has granted anti-trust approval of the proposed deal. The FTC has granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act with regard to the acquisition.