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PLEASE READ AND SCROLL DOWN!

 

By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

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2.            You acknowledge and agree that Moody’s credit ratings: (i) are current opinions of the future relative creditworthiness of securities and address no other risk; and (ii) are not statements of current or historical fact or recommendations to purchase, hold or sell particular securities.  Moody’s credit ratings and publications are not intended for retail investors, and it would be reckless and inappropriate for retail investors to use Moody’s credit ratings and publications when making an investment decision.  No warranty, express or implied, as the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any Moody’s credit rating is given or made by Moody’s in any form whatsoever.          

 

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Related Issuers
Rating Action:

Moody's affirms the ratings of Avangrid, Inc.; outlook changed to negative

19 Mar 2020

New York, March 19, 2020 -- Moody's Investors Service, ("Moody's") today affirmed the Baa1 long-term issuer rating, Baa1 senior unsecured ratings, (P)Baa1 senior unsecured shelf and P-2 short-term commercial paper rating of Avangrid, Inc. Avangrid's outlook is changed to negative from stable due to a weakening financial profile that could remain depressed for the next 2-3 years.

RATING RATIONALE

"Avangrid's financial credit metrics are declining at the same time that capital execution risk is rising" said Ryan Wobbrock Vice President -- Senior Credit Officer. "Debt will outpace cash flow growth as the company pursues development of 1.6 gigawatts of offshore wind, construction of a 1,200 megawatt transmission project in Maine and ongoing utility infrastructure investments" added Wobbrock.

Through year-end 2019, Avangrid generated a ratio of cash flow from operations before changes in working capital (CFO pre-WC) to debt of about 16%, which is below Moody's threshold for a factor that could lead to a downgrade. This metric level is weaker than expected for 2019 and will likely persist at the lower mid-teen's range. Over the next few years, Avangrid's business risk will rise due to the planned commencement of the 800 megawatt Vineyard Wind offshore wind project (Avangrid's 50% share represents 400 megawatts and is expected to cost the company $1.4 billion). The Vineyard Wind project, combined with the New England Clean Energy Connect transmission project (roughly $1.0 billion in cost and expected in-service by year-end 2022) will result in nearly $2.5 billion of new debt over the next few years. Cash flows from these projects will not begin until 2023 at the earliest. It is possible that both projects will see additional delays given legal and other permitting challenges.

Furthermore, Avangrid's regulated utility subsidiaries face cash flow headwinds as part of new rate case activity that will include tax-related cash refunds to customers at two of its largest utilities in New York and return penalties in Maine for electric distribution services.

These financial factors are partially counterbalanced by Avangrid's low-risk transmission and distribution utility profile, mostly long-term contracted renewable electricity generation and strong regulatory and operational diversity.

Environmental considerations incorporated into our credit analysis for Avangrid are primarily related to air pollution and regulations around carbon, methane and other greenhouse gas emissions. Avangrid operates around 8.0 gigawatts of renewable electric generation and continues to develop wind capacity that is helpful to the decarbonization efforts of the industry. At the same time, Avangrid's transmission and distribution assets transport energy that involves lifecycle emissions, from the production to the delivery of electricity and natural gas. This also includes methane leaks through Avangrid's own gas infrastructure, which consists of roughly $2.5 billion of rate base.

Social risks are primarily related to health and safety, demographic and societal trends, as well as customer relations. Currently, the company is attempting to remedy strained customer and regulatory relationships in Maine, following several customer billing complaints and a temporary return penalty levied by the Manie Public Utility Commission in February 2020. Regarding affordability, we see rising social risks associated with the COVID-19 pandemic and its effect on local economies in which Avangrid's utilities operate, such as upstate New York, Bridgeport and New Haven, Connecticut and Pittsfield, Massachusetts. There is potential that a prolonged economic recession could harm low-income customers in these areas, resulting in rate concerns and possibly increasing regulatory contentiousness.

From a corporate governance perspective, Avangrid's majority owner is Iberdrola S.A. (Baa1 stable), which owns an 81.5% stake in the company. The remaining 18.5% is held by the public. Avangrid's standalone corporate governance has addressed certain challenges regarding internal controls over financial reporting (e.g., adverse auditor opinions in 2016 and 2017 have been remediated) but will continue to compare unfavorably versus sector peers in terms of board independence, due to Iberdrola's ownership. The company also does not disclose any formal policy regarding strategic decisions around asset sales or mergers and acquisitions.

Outlook

Avangrid's negative outlook reflects the potential that key financial ratios will remain depressed for several years, as the company relies more heavily on debt to finance its growth plans. The ratio of CFO pre-WC to debt is expected to be in the mid-teen's range through 2023. The negative outlook incorporates a view that Avangrid will continue to pursue its large offshore wind project, and new transmission line project.

Factors that could lead to an upgrade

The material improvement in the credit supportiveness of the regulatory frameworks within which Avangrid's regulated utilities operate; eliminating major construction risk; and cash flow to debt ratios above 20%, on a sustainable basis, could result in an upgrade for Avangrid.

Factors that could lead to a downgrade

Avangrid could be downgraded if 1) the ratio of CFO pre-WC to debt is expected to remain in the mid-teen's percent range for several years, 2) a deterioration in the credit supportiveness of the regulatory jurisdiction across which AGR's utilities operate, or 3) an increase in the percentage of debt or cash flow associated with the more volatile, non-contracted unregulated segment.

Additionally, a material weakening in the credit quality of its majority owner, Iberdrola S.A. (ISA, Baa1 stable), or increased dividend payments from Avangrid to its shareholders could lead to a downgrade.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Ryan Wobbrock
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Michael G. Haggarty
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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