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Rating Action:

Moody's affirms NextEra Energy Baa1 stable

03 Dec 2014

Approximately $18 billion of debt affected

New York, December 03, 2014 -- Moody's Investors Service affirmed the debt ratings of NextEra Energy, Inc. (NEE, Baa1 issuer rating) and its subsidiaries NextEra Energy Capital Holdings, Inc. (NEECH, Baa1 senior unsecured based on NEE guarantee) and Florida Power & Light Co. (FPL, A1 issuer rating). The outlook is stable. These rating actions follow Moody's initial assessment of NEE's agreement to acquire Hawaiian Electric Industries, Inc. (HE), the parent of Hawaiian Electric Company, Inc. (HECO). Under the terms of the agreement, HE will spin off its other subsidiary American Savings Bank (ASB) prior to the closing of NEE's purchase, which is expected to occur in the fourth quarter of 2015 subject to the customary regulatory approvals.

Outlook Actions:

..Issuer: Florida Power & Light Company

....Outlook, Remains Stable

..Issuer: FPL Group Capital Trust I

....Outlook, Remains Stable

..Issuer: NextEra Energy Capital Holdings, Inc.

....Outlook, Remains Stable

..Issuer: NextEra Energy, Inc.

....Outlook, Remains Stable

Affirmations:

..Issuer: Dade County Industrial Development Auth., FL

....Senior Secured Revenue Bonds (Local Currency), Affirmed Aa2

....Senior Secured Revenue Bonds (Local Currency), Affirmed VMIG 1

..Issuer: Florida Power & Light Company

.... Commercial Paper (Local Currency), Affirmed P-1

.... Issuer Rating, Affirmed A1

....Preferred Shelf (Local Currency), Affirmed (P)A3

....Subordinated Shelf (Local Currency), Affirmed (P)A2

....Senior Unsecured Shelf (Local Currency), Affirmed (P)A1

....Senior Secured Shelf (Local Currency), Affirmed (P)Aa2

....Senior Secured First Mortgage Bonds (Local Currency), Affirmed Aa2

..Issuer: FPL Group Capital Trust I

....Pref. Stock Preferred Stock (Local Currency), Affirmed Baa2

..Issuer: Jacksonville (City of) FL

....Senior Secured Revenue Bonds (Local Currency), Affirmed Aa2

....Senior Secured Revenue Bonds (Local Currency), Affirmed VMIG 1

..Issuer: Manatee (County of) FL

....Senior Secured Revenue Bonds (Local Currency), Affirmed Aa2

....Senior Secured Revenue Bonds (Local Currency), Affirmed VMIG 1

..Issuer: Martin (County of) FL

....Senior Unsecured Revenue Bonds (Local Currency), Affirmed Aa2

....Senior Unsecured Revenue Bonds (Local Currency), Affirmed VMIG 1

..Issuer: Miami-Dade County Industrial Dev. Auth., FL

....Senior Secured Revenue Bonds (Local Currency), Affirmed Aa2

....Senior Secured Revenue Bonds (Local Currency), Affirmed VMIG 1

..Issuer: NextEra Energy Capital Holdings, Inc.

.... Commercial Paper (Local Currency), Affirmed P-2

....Junior Subordinated Regular Bond/Debenture (Local Currency), Affirmed Baa2

....Junior Subordinated Shelf (Local Currency), Affirmed (P)Baa2

....Preferred Shelf (Local Currency), Affirmed (P)Baa3

....Subordinated Shelf (Local Currency), Affirmed (P)Baa2

....Senior Unsecured Shelf (Local Currency), Affirmed (P)Baa1

....Senior Unsecured Commercial Paper (Local Currency), Affirmed P-2

....Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed Baa1

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Baa1

..Issuer: NextEra Energy, Inc.

.... Issuer Rating (Local Currency), Affirmed Baa1

....Subordinated Shelf (Local Currency), Affirmed (P)Baa2

....Preferred Shelf (Local Currency), Affirmed (P)Baa3

....Junior Subordinated Shelf (Local Currency), Affirmed (P)Baa2

....Senior Unsecured Shelf (Local Currency), Affirmed (P)Baa1

..Issuer: Putnam County Development Authority, FL

....Senior Secured Revenue Bonds (Local Currency), Affirmed Aa2

....Senior Secured Revenue Bonds (Local Currency), Affirmed VMIG 1

..Issuer: St. Lucie (County of) FL

....Senior Secured Revenue Bonds (Local Currency), Affirmed Aa2

....Senior Secured Revenue Bonds (Local Currency), Affirmed VMIG 1

RATINGS RATIONALE

"Being relatively small and 100% equity-financed, the Hawaiian Electric acquisition will have minimal impact on NextEra's credit metrics," says Moody's senior vice president Mihoko Manabe.

The stock-for-stock transaction values HE's equity at approximately $3.4 billion, of which $2.6 billion is attributed to HECO. HECO's enterprise value of $4.3 billion, including $1.7 billion of HE's non-bank debt, would put the EBITDA multiple at 9.4 times, which is a full valuation not unusual among recent utility transactions.

Moody's expects that the transaction will have a net-neutral effect on the credit quality of NEE, NEECH, and FPL, as HE's relatively small size and additional regulated business offset the effect of HE's weaker pro forma credit metrics. The equity financing is credit-positive by avoiding acquisition debt, particularly a significant increase in the holding company-level debt. NEE's holding company-level debt that resides at NEECH is about 40% of consolidated debt (both actual and pro forma on a GAAP basis), which is higher than most of its peers.

HE does have a minor credit-positive effect of making NEE's business mix slightly more regulated and diversified in terms of regulatory exposure, cash flow generation, and the dividends it receives from its subsidiaries. NEE is currently 49% regulated (calculated as the average of assets, EBITDA, and debt), but HE will tip its regulated component to 52% pro forma.

Based on September 2014 figures, pro forma for the transaction, HE would comprise about 7% of the adjusted debt and 6% of the cash flow pre-working capital (CFO pre-w/c) of the combined entity. Because these increments are in tandem, NEE's credit ratios barely move, for example, CFO pre-w/c to debt of 19.5% on a standalone basis as of last twelve months ended September 2014 to 19.3% on a pro forma basis. HECO's CFO pre-w/c to debt was 20.6% as of September 2014, but weaker at 16.8% after adjusted to include about $370 million of HE parent debt.

HE will provide some geographic diversification in NEE's pursuit of new regulated investments, as its unregulated renewables projects come on-line over the next few years. Financing the HE acquisition with equity preserves financial flexibility for future opportunities. Some regulated investments NEE has pursued have been sizable, the largest being its unsuccessful proposal this past summer to acquire the majority owner of Oncor Energy Delivery Company LLC out of its parent's bankruptcy. NEE also has interests in three greenfield gas pipelines and is seeking to expand its electric transmission business in Canada and the US.

For its part, HE can benefit from a new owner with wider financial resources and operational capability. The largest utility in Hawaii, HECO is under heavy pressure from its regulators and stakeholders to transform its infrastructure to reduce its dependence on expensive fuel oil. Its proposed capital plan will cost roughly $4 billion over the next five years, which is almost twice its current rate base and presents a potential for under-recovery. Moody's assumes reasonable regulatory support will continue but anticipates some erosion in HECO's near-term credit metrics, which would be better absorbed within NEE's larger balance sheet. NEE's expertise in renewables and transmission would also be helpful in HECO's plans to integrate more wind and solar into its energy mix.

RATING OUTLOOK

The stable outlook is based on NEE's financial metrics recovering over the next 12 to 18 months, for example, CFO pre-WC / Debt to about 20%.

WHAT COULD CHANGE THE RATING -- UP

An upgrade is unlikely in the foreseeable future, given this pending acquisition and cash flow metrics that have not quite yet reached the 20% consolidated CFO pre-WC / Debt threshold that Moody's expects longer term. Longer term, an upgrade is possible if NEE substantially reduces holding company-level debt and its unregulated activities or improves its cash flow metrics, such as consolidated CFO pre-WC / Debt sustained in the high 20% range.

WHAT COULD CHANGE THE RATING -- DOWN

A downgrade is possible if NEE's consolidated CFO pre-WC / Debt remains below 20%. In addition, NEE would run out of financial cushion if the percentage of holding company debt to total consolidated debt rises to about 45%.

The methodologies used to rate NextEra Energy, Inc., NextEra Energy Capital Holdings, Inc., and FPL Group Capital Trust I were Unregulated Utilities and Unregulated Power Companies published in October 2014, and Regulated Electric and Gas Utilities published in December 2013. The prinicipal methdology used to rate Florida Power & Light Company was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

NextEra Energy, Inc. is a power and utility company headquartered in Juno Beach, Florida.

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.

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.

Mihoko Manabe
Senior Vice President
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 affirms NextEra Energy Baa1 stable
No Related Data.
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