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Rating Action:

Moody's changes the rating outlook of Emera Inc. and Emera US Finance LP to negative; affirms TECO Energy and Tampa Electric Company's ratings with a stable outlook

21 Dec 2017

Approximately $10 billion debt affected

New York, December 21, 2017 -- Moody's Investors Service, (Moody's) changed the rating outlooks of Emera Inc. (Emera) and Emera US Finance LP to negative from stable. At the same time, Moody's affirmed Emera's Baa3 issuer rating and Emera US Finance LP's Baa3 guaranteed senior unsecured rating. Moody's also affirmed the Baa2 senior unsecured ratings of TECO Energy, Inc. and TECO Energy's financing subsidiary, TECO Finance, Inc.; and the A3 issuer and senior unsecured ratings of Tampa Electric Company, with a stable outlook.

Emera US Finance LP is a financing subsidiary of Emera and its senior unsecured notes are fully and unconditionally guaranteed, on a joint and several basis, by Emera and Emera US Holdings Inc. (EUSHI, unrated), an intermediate holding company and subsidiary of Emera. As a result of the guarantee, Emera US Finance's rating is directly correlated to Emera's credit profile and rating. EUSHI does not have any operations and serves as the holding company of Emera's assets located in the United States, including Emera Maine and TECO Energy, Inc.

RATINGS RATIONALE

"Emera's negative outlook is driven by weaker than expected consolidated financial metrics," said Jeff Cassella, Vice President -- Senior Analyst. "Although Emera has taken actions to improve its financial profile, such as its recent equity offering, further steps are needed to improve its financial profile to a level that is commensurate with its rating" added Cassella.

For the twelve months ended 30 September 2017, Emera's ratio of cash flow from operations pre-working capital (CFO pre-W/C) to debt was approximately 10% which is lower than the 11% that was expected in 2017. Emera was assigned its Baa3 rating last year and Moody's incorporated a view that Emera's financial profile would gradually improve over time, such that Emera's ratio of CFO pre-W/C to debt will steadily increase to about 14% in 2019 from around 11% in 2017.

With respect to the recent equity offering on 6 December 2017, Emera announced an agreement to initially sell 14.6 million shares at CAD47.90 each for gross proceeds of about CAD700 million. Gross proceeds may increase by an additional CAD50 million should underwriters exercise an overallotment option to purchase an additional 1,045,000 shares. The net proceeds will be used to reduce holding company debt and help fund future investments. The equity issuance is credit positive as it strengthened Emera's liquidity and supports the company's effort to improve its financial metrics.

Over the next 12-18 months, we expect Emera will continue to exhibit financial policies that emphasize holding company debt reduction and improving cash flow generation across its portfolio of subsidiaries. The negative outlook will focus on the company's execution to improve its financial metrics. Moody's could change the outlook back to stable if Emera is able to sustainably improve its ratio of CFO pre-W/C to debt to above 12% by the end of 2018.

Emera Inc.'s Baa3 rating reflects its relatively low risk business profile and geographic and regulatory diversity across its portfolio of operating subsidiaries. Emera's regulated subsidiaries are expected to account for about 90% of consolidated cash flows, a credit positive. However, Emera has a high financial risk profile, evidenced by the significant level of consolidated debt of about CAD$15.2 billion at 30 September 2017, resulting in debt to rate base of about 100%. Even with the high leverage weighing on Emera's consolidated financial metrics, the Baa3 rating incorporated a view that Emera's financial profile will gradually improve over the next few years.

Furthermore, Emera's holding company debt as a percentage of total consolidated debt accounts for approximately 50%, which leads to material structural subordination considerations and wider notching differential between the ratings of Emera and its principal operating subsidiaries. For calculation purposes, we include the intermediate holding company debt at TECO Energy (approx. US$1.2 billion as of 30 September 2017) as holding company debt and included the Maritime Link project debt (approx. CAD$1.1 billion as of 30 September 2017) financing in consolidated debt.

The affirmation of TECO Energy and Tampa Electric's ratings with stable outlooks considers the solid credit quality of Tampa Electric Company, which operates in Florida's highly credit supportive regulatory environment. The ratings also reflect TECO Energy and Tampa Electric's solid financial profiles. TECO Energy also benefits modestly from the geographic and cash flow diversity from its smaller subsidiary, New Mexico Gas Company (not rated).

TECO Energy's credit profile is heavily influenced by Tampa Electric's credit worthiness, but also reflects the roughly 25% ratio of intermediate holding company debt (issued at TECO Finance) as a percentage of the TECO Energy consolidated debt. TECO Finance's debt is guaranteed by TECO Energy, therefore TECO Finance has the same rating.

Rating Outlook

Emera's negative rating outlook reflects weaker than expected financial metrics as well as the execution risk associated with improving its financial metrics over the next 12-18 months.

Factors that Could Lead to an Upgrade

A rating upgrade over the near-to-intermediate term is unlikely given the negative outlook and the significant amount of holding company debt at the Emera level. However, the outlook could be revised to stable if Emera were able to improve its financial metrics over the next 12-18 months such that its ratio of CFO pre-W/C to debt was sustained above 12%.

Factors that Could Lead to a Downgrade

Emera's rating could be downgraded if regulatory support of its operating utilities deteriorates; or business risk profile increases through investments in its non-regulated activities; or holding company debt increases further; or if financial metrics do not improve as expected and consolidated CFO pre-W/C to debt remains below 12% on a sustained basis.

Headquartered in Halifax, Nova Scotia, Emera is a diversified utility and energy services holding company. For the LTM 30 September 2017, Emera reported CAD$28 billion in assets and CAD$6.3 billion in revenues. Over 90% of Emera's earnings are from rate-regulated businesses. TECO Energy, acquired in July 2016, is Emera's largest subsidiary. TECO Energy is the intermediate parent holding company of Tampa Electric Company and New Mexico Gas Company. Emera also owns Nova Scotia Power Inc., a vertically integrated electric utility that serves approximately 511,000 customers in Nova Scotia, and Emera Maine, a regulated electric T&D utility that serves 157,000 customers in Maine. Emera Caribbean provides electric service to 182,000 customers and has ownership interests in regulated vertically integrated utilities on several Caribbean Islands. Emera also owns gas distribution pipelines in Canada and various generation assets in Canada and New England.

Outlook Actions:

..Issuer: Emera Inc.

....Outlook, Changed To Negative From Stable

..Issuer: Emera US Finance LP

....Outlook, Changed To Negative From Stable

..Issuer: Tampa Electric Company

....Outlook, Maintained at Stable

..Issuer: TECO Energy, Inc.

....Outlook, Maintained at Stable

..Issuer: TECO Finance, Inc.

....Outlook, Maintained at Stable

Affirmations:

..Issuer: Emera Inc.

.... Issuer Rating , Affirmed Baa3

....Subordinate Regular Bond/Debenture, Affirmed Ba2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Emera US Finance LP

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Hillsborough County Ind. Dev. Auth. FL

....Senior Unsecured Revenue Bonds, Affirmed A3

....Underlying Senior Unsecured Revenue Bonds, Affirmed A3

..Issuer: Polk County Industrial Devel. Authority, FL

....Senior Unsecured Revenue Bonds, Affirmed A3

....Underlying Senior Unsecured Revenue Bonds, Affirmed A3

..Issuer: Tampa Electric Company

.... Issuer Rating, Affirmed A3

....Senior Unsecured Shelf, Affirmed (P)A3

....Senior Unsecured Bank Credit Facility, Affirmed A3

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: TECO Energy, Inc.

....Senior Unsecured Shelf, Affirmed (P)Baa2

....Senior Unsecured Bank Credit Facility, Affirmed Baa2

..Issuer: TECO Finance, Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

....Senior Unsecured Shelf, Affirmed (P)Baa2

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 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 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.

Jeffrey F. Cassella
Vice President - Senior Analyst
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

Jim Hempstead
MD - Utilities
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.
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