Approximately $2.2 billion of debt securities downgraded
NOTE: On August 21, 2015, the list of affected ratings in the press release was corrected to amend seniority for Eutaw (City of) AL, Industrial Dev. Board’s revenue bonds from Senior Secured to Senior Unsecured. Revised release follows.
New York, August 14, 2015 -- Moody's Investors Service, ("Moody's") downgraded
Mississippi Power Company's senior unsecured rating to Baa2 from
Baa1 and its preferred stock rating to Ba1 from Baa3. The rating
outlook is negative. This rating action concludes the review of
Mississippi Power's rating initiated on 27 May 2015. Moody's
affirmed the ratings of The Southern Company (Southern, Baa1 senior
unsecured) with a stable outlook.
Ratings Rationale
"The downgrade of Mississippi Power's ratings reflects the
lack of permanent cost recovery provisions in place for the Kemper IGCC
plant since the Mississippi Supreme Court invalidated the utility's
2013 rate plan earlier this year," said Michael G.
Haggarty, Associate Managing Director. "The downgrade
also considers the increased concentration risk, financial exposure
and liquidity pressure on the utility following the exit of its electric
cooperative utility partner from a planned 15% ownership in the
Kemper plant," added Haggarty.
Although the Mississippi Public Service Commission (MPSC) approved interim
rates by a two to one margin yesterday, providing the utility with
some limited, potentially refundable rate relief on the plant's
in-service assets and averting a potentially more negative rating
action, there is still no permanent cost recovery plan in place
for the Kemper plant. The lack of a unanimous decision on a utility's
appeal for emergency financial relief is a particular credit concern.
In addition, some interveners may challenge the approval of these
interim rates.
The negative outlook reflects the financial uncertainty still facing Mississippi
Power as it strives to obtain permanent rate relief on the Kemper plant
with only two of the three commissioners supportive. Under a scheduling
order issued by the MPSC earlier this week, hearings on designating
these interim rates as permanent, including determining the prudency
of the costs incurred for the in-service assets, are scheduled
for November with a final order to be issued by 8 December 2015.
Near-term approval of some permanent rate relief on the Kemper
plant has become all the more important because of the upcoming change
in the composition of the MPSC on 1 January 2016 following elections this
November. Several of the candidates running for the MPSC have voiced
their opposition to the Kemper plant, as well as for the rate increases
necessary for the utility recover the costs incurred under the MPSC's
previously established construction cost cap. A less credit supportive
regulatory commission in place without some permanent rates in effect
will likely lead to a further rating downgrade.
The negative outlook also reflects Mississippi Power's constrained
liquidity position and high reliance on parent company Southern for liquidity
support. As a result of the Supreme Court decision, the MPSC
ordered the utility to stop collecting the rates that had been in place
since 2013 and to submit a plan for refunding those amounts already collected.
The approximately $350 million of refunds will put additional stress
on Mississippi Power's cash flow coverage metrics and increase its
reliance on the Southern parent company for intercompany loans and other
financial support.
Mississippi Power already borrowed $301 million from Southern in
June through an 18-month promissory note to fund the return of
the deposit to South Mississippi Electric, its former 15%
partner in the Kemper project. For external financing, the
utility is relying almost exclusively on short-term bank term loans
($900 million due 1 April 2016) in anticipation of a potential
securitization of a portion of the Kemper costs, approval of which
is by no means assured.
The Kemper project continues to be affected by schedule delays and cost
increases and Mississippi Power now expects the plant to begin commercial
operation during the first half of 2016. Construction of the plant
is complete and its combined cycle has been in-service since 9
August 2014.
Although the utility fired its first gasifier in the first quarter of
2015, it recently communicated a new delay in the first syngas production
to the fourth quarter of 2015 from the third quarter as it tests sand
in the gasifier before introducing lignite. Monthly status reports
to the MPSC over the second quarter of 2015 indicate that plant costs
have continued to rise, albeit at much lower levels than previously,
increasing by $4 million in April, $10 million in
May, and $9 million in June.
What Could Change the Rating - Up
An upgrade of Mississippi Power is highly unlikely while there are no
permanent cost recovery provisions in place and while the utility is midst
of completing and testing the Kemper plant. Ratings could only
be upgraded if there is an MPSC approved plan for the ultimate recovery
of costs up to the current $2.88 billion regulatory approved
cap, if the MPSC remains credit supportive following the election
of new commissioners this November, and if the utility successfully
executes an anticipated lengthy start-up and testing phase.
Any upgrade would also be predicated on an improvement in credit metrics
to levels more commensurate with a high Baa ratings, including CFO
pre-working capital to debt of at least 20% on a sustained
basis.
What Could Change the Rating - Down
A downgrade of Mississippi Power could occur if there is no near term
approval by the MPSC on a permanent cost recovery plan for Kemper;
if recently approved interim rates are invalidated or rolled back for
any reason; if there is a less credit supportive regulatory commission
elected in November; if there are additional material delays,
cost increases, or other problems associated with the plant;
if parent company financial and liquidity support for the utility becomes
uncertain and/or Southern's commitment to the project or Mississippi
Power diminishes; or if Mississippi Power's CFO pre-working
capital to debt falls below 15% for a sustained period.
The affirmation of the ratings of Southern considers the large and diverse
nature of its sources of cash flow, with three of its other major
operating subsidiaries, Alabama Power Company (A1 senior unsecured,
stable), Gulf Power Company (A2 senior unsecured, stable),
and Southern Power Company (Baa1 senior unsecured, stable),
all maintaining stable rating outlooks. Although Southern's
largest utility, subsidiary Georgia Power (A3 senior unsecured,
stable) has experienced cost increases and delays at its Vogtle new nuclear
project that have weakened its relative position at the A3 rating level,
Moody's affirmed its rating and stable outlook in February 2015
upon its announcement of additional schedule delays. The size and
importance of Georgia Power and the Vogtle nuclear project make them a
much more important driver of the parent company's consolidated
credit profile and credit rating.
Although issues associated with both the Vogtle and Kemper projects have
weakened Southern's relative position at the Baa1 rating level,
the stable rating outlook on the company reflects our view that most of
its utility regulatory environments remain credit supportive. Mississippi
Power is a relatively small subsidiary that provided approximately 10%
of the consolidated company's cash from operations in 2014.
Southern's rating is more likely to be negatively affected if one
of its two largest subsidiaries, Alabama Power or Georgia Power,
is downgraded; if there are significant additional delays or cost
overruns on the Vogtle nuclear plant construction; or if there is
significant debt issued at the parent company level to finance either
of these construction projects or other capital expenditures.
Downgrades:
..Issuer: Eutaw (City of) AL, Industrial Dev.
Board - (Supported by Mississippi Power Company)
....Senior Unsecured Revenue Bonds, Downgraded
to Baa2 from Baa1
..Issuer: Harrison (County of) MS - (Supported
by Mississippi Power Company)
....Senior Unsecured Revenue Bonds,
Downgraded to Baa2 from Baa1
..Issuer: Mississippi Business Finance Corporation
- (Supported by Mississippi Power Company)
....Senior Unsecured Revenue Bonds,
Downgraded to Baa2 from Baa1
..Issuer: Mississippi Power Company
.... Issuer Rating, Downgraded to Baa2
from Baa1
....Pref. Stock Shelf, Downgraded
to (P)Ba1 from (P)Baa3
....Senior Unsecured Shelf, Downgraded
to (P)Baa2 from (P)Baa1
....Subordinated Shelf, Downgraded to
(P)Baa3 from (P)Baa2
....Junior Subordinate Shelf, Downgraded
to (P)Baa3 from (P)Baa2
....Pref. Stock Preferred Stock,
Downgraded to Ba1 from Baa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from Baa1
Outlook Actions:
..Issuer: Mississippi Power Company
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Southern Company (The)
....Outlook, Remains Stable
Affirmations:
..Issuer: Southern Company (The)
.... Commercial Paper (Local Currency),
Affirmed P-2
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Senior Unsecured Bank Credit Facility,
Affirmed Baa1
The Southern Company is a utility holding company headquartered in Atlanta,
Georgia and the parent company of utility subsidiaries Alabama Power Company,
Georgia Power Company, Gulf Power Company, Mississippi Power
Company, Southern Electric Generating Company, wholesale power
company Southern Power Company, financing subsidiary Southern Company
Capital Funding, Inc., and commercial paper issuer
Southern Company Funding Corporation.
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in December 2013. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The following information supplements Disclosure 10 ("Information
Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J)
of SEC Rule 17g-7") in the regulatory disclosures made at
the ratings tab on the issuer/entity page on www.moodys.com
for each credit rating:
Moody's was not paid for services other than determining a credit
rating in the most recently ended fiscal year by the person that paid
Moody's to determine this credit rating.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Michael G. Haggarty
Associate Managing Director
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Downgrades Mississippi Power to Baa2, negative; affirms Southern, stable
