Moody’s downgrades Southern; cites AGL deal, Kemper deal

Moody’s Investors Service said May 13 that it has downgraded the long-term senior unsecured rating of Southern (NYSE:SO) in a downgrade move that affected about $4bn of debt.

Moody’s downgraded the long-term senior unsecured rating of the Southern parent company from Baa2 from Baa1. Moody’s affirmed the ratings and outlooks of Southern’s subsidiaries.

“The downgrade of Southern is prompted by the primarily debt financed acquisition of AGL Resources, Inc. (AGL, unrated) which will increase parent company leverage and reduce cash flow coverage metrics”, said Michael G. Haggarty, Associate Managing Director at Moody’s.

The addition of approximately $8bn of debt at the Southern holding company will increase parent level debt from around $4 billion currently or 12-13% of total consolidated debt to the $12bn range, around 25% of consolidated debt, pressuring cash flow coverage metrics.

“We project Southern’s consolidated CFO pre-working capital to debt ratio will fall to approximately 15% immediately following the acquisition, from the 20% range currently, and not recover to previous levels for several years” added Haggarty.

The AGL acquisition comes at a time when Southern credit quality and relative position at the previous Baa1 rating level had already been weakened by over $2bn of pre-tax charges related to cost increases and delays at the Kemper Integrated Gasification Combined Cycle (IGCC) power plant at Mississippi Power, according to Moody’s.

Southern continues to provide critical support to Mississippi Power, with $776m of promissory notes outstanding to the utility to maintain its liquidity until a permanent Kemper cost plan is approved and implemented.

In addition, Southern’s largest utility, Georgia Power is in the midst of an expensive, multi-year new nuclear plant construction program at its Vogtle nuclear plant site that has experienced cost increases and delays, with commercial operation currently three years behind schedule, according to the Moody’s assessment.

 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.