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Rating Action:

Moody's downgrades CenterPoint Energy, Inc. to Baa2 with stable outlook

28 Jan 2019

Approximately $2.9 billion of securities affected

New York, January 28, 2019 -- Moody's Investors Service ("Moody's") today downgraded the long-term ratings of CenterPoint Energy, Inc. (CenterPoint) including its Issuer rating to Baa2 from Baa1, senior unsecured rating to Baa2 from Baa1, subordinated debt rating to Baa3 from Baa2 and preferred stock rating to Ba1 from Baa3 while affirming its Prime-2 short term rating for commercial paper and A1 senior secured revenue bonds. The rating outlook for CenterPoint was changed to stable from negative.

Downgrades:

..Issuer: CenterPoint Energy, Inc.

.... LT Issuer Rating, Downgraded to Baa2 from Baa1

....Pref. Stock, Downgraded to Ba1 from Baa3

....Subordinate, Downgraded to Baa3 from Baa2

....Senior Unsecured Bank Credit Facility, Downgraded to Baa2 from Baa1

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa2 from Baa1

Outlook Actions:

..Issuer: CenterPoint Energy, Inc.

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: CenterPoint Energy, Inc.

.... ST Issuer Rating, Affirmed P-2

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

..Issuer: Matagorda County Navigation District 1, TX

....Senior Secured Revenue Bonds, Affirmed A1

....Underlying Senior Secured Revenue Bonds, Affirmed A1

RATINGS RATIONALE

"We expect the acquisition of Vectren Corp. (Vectren) to close imminently and the downgrade reflects CenterPoint's financing of the acquisition and higher leverage post transaction," said Robert Petrosino, Vice President -- Senior Analyst.

Moody's projects that the ratio of cash flow from operations before changes in working capital (CFO pre-WC) to debt will decline from approximately 18% to the mid-teens range as a result of the acquisition. Parent debt, including the expected capitalization of CenterPoint Energy Midstream, Inc. (CenterPoint Midstream, not rated) is projected to account for over 28% of consolidated debt, up from approximately 15% pre-acquisition.

The acquisition of Vectren provides several positive qualitative considerations, including more geographic and regulatory diversity in the constructive regulatory jurisdictions of Indiana and Ohio and provides a similar level of rate base growth as compared with CenterPoint's existing utility businesses. Vectren's utility businesses are predominately lower risk natural gas local distribution companies (LDC) but also includes a small, higher risk integrated electric company. As a result, CenterPoint is re-entering the power generation business. This exposure to generation is small relative to the consolidated corporate family, but it does marginally raise the exposure to carbon transition risks, thanks to Vectren's approximately 1,300 MWs of coal-fired power generation assets. On a smaller scale, Vectren's non-regulated businesses may complement some of CenterPoint's non-regulated businesses, which is expected to comprise approximately 35% of consolidated net income.

CenterPoint's mix of regulated and non-regulated business improves marginally from 60% to 65% with the largest non-regulated business represented by its 54% common unit and 50% general partner ownership of Enable Midstream Partners, LP (Baa3, stable). In addition, CenterPoint directly owns 14.5 million Series A preferred units of Enable, all from which CenterPoint has received equity cash flows of approximately $333 million annually over the last three years. Moody's views the distributions received from Enable as significantly more risky than the dividends received from its regulated utility businesses. CenterPoint is providing an intercompany loan to its newly created CenterPoint Midstream subsidiary which holds its common unit and general partner ownership in Enable.

Factors That Could Lead to an Upgrade

CenterPoint could be upgraded with a material de-risking of its businesses, especially with respect to its midstream operations, as well as other businesses of which its non-regulated business generate approximately 35% of net income. Ratings could also be upgraded with an improvement in its key credit measures, including CFO pre-WC to debt above 18% on a sustained basis and the ratio of parent company debt to consolidated debt declines to the low teens range.

Factors That Could Lead to a Downgrade

CenterPoint's rating could be downgraded if its overall regulatory construct deteriorates resulting in increased regulatory lag, increased risk or lower returns. CenterPoint's rating may also be considered for downgrade if its non-regulated business risk increases or becomes a greater contributor to earnings and cash flow. Ratings could also be downgraded with increased leverage or reduced cash flow, where the ratio of CFO pre-WC to debt declines below 15% for a sustained period of time.

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

CenterPoint Energy, Inc. (CenterPoint) headquartered in Houston, Texas, is a primarily regulated electric and natural gas distribution company with a joint venture interest in a midstream master limited partnership (MLP). CenterPoint operates through two wholly owned subsidiaries, CenterPoint Energy Houston Electric, LLC (CEHE) and CenterPoint Energy Resources Corp. (CERC). CEHE is a regulated electric transmission and distribution (T&D) utility serving the greater Houston area. CERC is a local gas distribution company (LDC) with divisions in six states. Also, CERC is the parent of CenterPoint Energy Services (CES), which is a natural gas marketing business that sells non-rate-regulated natural gas and related services to approximately 30,000 commercial, industrial and wholesale customers in 33 states as of 30-September-2018. In addition, through CenterPoint Energy Midstream, Inc., the company holds a 54.1% limited partner (LP) economic interest in Enable Midstream Partners, LP (Enable).

Vectren Corp is an energy holding company headquartered in Evansville, Indiana. Its wholly owned subsidiary, Vectren Utility Holdings, Inc. (VUHI) is an intermediate holding company for its three public utilities: Indiana Gas Company, Inc. Southern Indiana Gas and Electric Company and Vectren Energy Delivery of Ohio, Inc. Vectren Enterprises is involved in non-utility businesses including underground pipe construction and repair through its Infrastructure Services subsidiary and energy project contracting through its Energy Service subsidiary.

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.

Robert Petrosino
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

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.
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