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Rating Action:

Moody's affirms NextEra at Baa1 stable

22 May 2014

Approximately $13 billion of debt affected

New York, May 22, 2014 -- Moody's Investors Service affirmed the ratings of NextEra Energy, Inc. (NEE, Baa1 issuer rating) and NextEra Energy Capital Holdings, Inc. (NEECH, Baa1 senior unsecured, guaranteed by NEE). The rating outlook for both NEE and NEECH is stable.

Moody's action follows NEE's new limited partnership, NextEra Energy Partners, LP (NEP, the yieldco, not rated) publicly filing a Form S-1 registration statement with the US Securities and Exchange Commission for a proposed initial public offering (IPO) of a new yieldco financing vehicle. The IPO is for at least 25% (almost 29% with the exercise of the greenshoe) of the limited partner (LP) interest in NEP and is expected to raise proceeds in the range of $300 to $400 million.

Issuer: NextEra Energy Capital Holdings, Inc.

....Outlook, Remains Stable

..Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

....Junior Subordinated Regular Bond/Debenture, Affirmed Baa2

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

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

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

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

.... Commercial Paper, Affirmed P-2

....Senior Unsecured Commercial Paper, Affirmed P-2

Issuer: NextEra Energy, Inc.

....Outlook, Remains Stable

..Affirmations:

.... Issuer Rating, Affirmed Baa1

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

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

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

RATINGS RATIONALE

"As proposed in the S-1 filing, the IPO appears in line with our expectation that NextEra will implement the yieldco in a measured manner and, over time, NextEra will apply most of the proceeds from the yieldco to reduce debt, manage its capital structure, and defend its current rating," says Moody's senior vice president Mihoko Manabe.

NEE and NEECH's ratings and stable outlooks will be subject to NEE using the majority of the NEP equity sales proceeds to reduce a commensurate amount of NEECH holding company debt so as to avoid an undue increase in NEE's consolidated debt. The creation is credit-positive as a new source of equity capital and proceeds for debt reduction; credit-negative by increasing net payouts to equity holders and incrementally adding to the complexity of NEE/NEECH's capital structure.

Moody's notes that NEE is uniquely positioned among large, diversified utility holding companies to create a yieldco, because of its substantial portfolio of existing renewable assets with long-term contracts that will generate stable cash flow. In addition, a large backlog of projects under development provides good visibility into future growth prospects for NEP.

"We see this yieldco as an alternative funding vehicle for NEE to raise equity capital to develop new projects from a distinct, growing class of investors seeking dividend-growth oriented securities," Manabe added.

Moody's said, however, that the creation of a yieldco will introduce some credit-negative aspects to NEE. For example, the loss of a portion of its most stable cash flow to a new set of shareholders, and public pressure for NEP to keep growing, including future acquisitions, aimed to continually and steadily increase dividends. Structural subordination of the holding company-level obligations at NEECH, which is already subordinated to a significant amount of project-level debt, could deepen over time if NEP begins to issue debt at some point in the future.

From a liquidity perspective, NEP will initially have a $250 million revolver, expiring in 2019. Not only is NEP itself a brand-new entity, but yieldcos as an asset class are also untested, although NEP replicates the MLP corporate model which is well-established in the oil and gas industry.

As expected, NEP's initial generation portfolio is small in the context of NEE's vast asset base and within the range that the company gave last fall. NEP will start out with 990 megawatts (MW), about 5% of the 18,443 net MW of unregulated power plants currently owned by NextEra Energy Resources (NEER, unrated), a subsidiary of NEE. This initial portfolio consists 71% of wind and 20% solar assets, 63% of which is located in western US, and the remaining 37% in Ontario, Canada. NEP has rights of first offer on an additional 1,549 MW of NEER's plants.

From NEE's credit perspective, Moody's will assess the financial impact of NEP on a NEE consolidated basis. NEP's estimated EBITDA for the next twelve months ending June 2015 represents about 4% of NEE's last twelve months' EBITDA of $6.9 billion, and NEP's debt of $1.4 billion is about 5% of NEE's consolidated debt.

NEE targets NEP's distributions to public LP unitholders to grow at a rapid clip of 12% to 15% per common unit, but Moody's anticipates that payouts to the public will also be a minor portion of NEE's total distributions and dividends for the foreseeable future, when NEE is expected to retain the majority of the LP interest. Some key terms of the units, such as the minimum quarterly distribution rate that is part of NEE's incentive distribution rights scheme, have yet to be determined but will be finalized prior to the close of the IPO.

NEE will apply proceeds from NEP equity issuances to meet its own financial targets, including achieving a business mix that is mostly regulated by a number of measures (its regulated businesses comprised 54% of its total assets in 2013) and a ratio of cash flow pre-working capital (CF pre WC)-to-debt of at least 20%. This ratio was 17% for the last twelve months ended March 2014, but Moody's anticipates that NEE's underlying cash flow will rise from new projects coming on line over the course of this year so that CF pre WC-to-debt will approximate 20% for 2014.

NEE will face increasing pressure if its consolidated CF pre WC-to-debt remains below 20% beyond 2014. An upgrade is unlikely in the foreseeable future, given that NEE's cash flow metrics are still in recovery mode since the big spike in capital spending in 2012 and below Moody's parameters for a Baa1-rated unregulated power company.

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

The methodologies used in this rating were Unregulated Utilities and Power Companies published in August 2009 and 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.

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 at Baa1 stable
No Related Data.
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