Please Note
We brought you to this page based on your search query. If this isn't what you are looking for, you can continue to Search Results for ""
The maximum number of items you can export is 3,000. Please reduce your list by using the filtering tool to the left.
Close
Close
Email Research
Recipient email addresses will not be used in mailing lists or redistributed.
Recipient's
Email

Use semicolon to separate each address, limit to 20 addresses.
Enter the
characters you see
Close
Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Close
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Rating Action:

Moody's downgrades Mississippi Power, assigns Ba1 CFR, outlook negative

Global Credit Research - 01 Mar 2017

Approximately $800 million of debt securities downgraded

New York, March 01, 2017 -- Moody's Investors Service ("Moody's") downgraded Mississippi Power Company's ratings, including its senior unsecured rating to Ba1 from Baa3, preferred stock to Ba3 from Ba2, and short-term pollution control revenue bond rating to SG from VMIG 3. At the same time, Moody's assigned a Ba1 Corporate Family Rating (CFR), a Ba2-PD Probability of Default rating, and an SGL-3 Speculative Grade Liquidity rating to Mississippi Power. Mississippi Power's Baa3 Issuer Rating is withdrawn. The rating outlook is negative. This concludes the review initiated on 6 February 2017.

The ratings and outlook of the parent company, The Southern Company (Southern, Baa2 senior unsecured, stable), are unchanged.

Downgrades:

..Issuer: Eutaw (City of) AL, Industrial Dev. Board

....Senior Unsecured Revenue Bonds, Downgraded to Ba1 (LGD3) from Baa3

....Senior Unsecured Revenue Bonds, Downgraded to S.G. from VMIG 3

..Issuer: Harrison (County of) MS

....Senior Unsecured Revenue Bonds, Downgraded to Ba1 (LGD3) from Baa3

....Senior Unsecured Revenue Bonds, Downgraded to S.G. from VMIG 3

..Issuer: Mississippi Business Finance Corporation

....Senior Unsecured Revenue Bonds, Downgraded to Ba1 (LGD3) from Baa3

....Senior Unsecured Revenue Bonds, Downgraded to S.G. from VMIG 3

..Issuer: Mississippi Power Company

....Pref. Stock Preferred Stock, Downgraded to Ba3 (LGD5) from Ba2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 (LGD3) from Baa3

Assignments:

..Issuer: Mississippi Power Company

.... Probability of Default Rating, Assigned Ba2-PD

.... Speculative Grade Liquidity Rating, Assigned SGL-3

.... Corporate Family Rating, Assigned Ba1

Outlook Actions:

..Issuer: Mississippi Power Company

....Outlook, Changed To Negative From Rating Under Review

Withdrawals:

..Issuer: Mississippi Power Company

.... Issuer Rating, Withdrawn , previously rated Baa3

RATINGS RATIONALE

"The downgrade of Mississippi Power's ratings reflects our expectations for heightened regulatory contentiousness as the utility pursues cost recovery on the increasingly uneconomic Kemper integrated gasification combined cycle (IGCC) plant, construction of which has severely stressed the utility's financial profile" said Michael G. Haggarty, Associate Managing Director. There is a high degree of uncertainty with regard to regulatory treatment of the plant, as increased capital costs, higher projected operating costs and the continued inability of the utility to put the plant into service has increased the possibility that the IGCC portion of the plant may not be economic to operate at all. Despite substantial ongoing financial and liquidity support from The Southern Company (Baa2 stable), Mississippi Power's risk profile has deteriorated markedly as the Kemper plant has proceeded.

On 22 February 2017, Mississippi Power filed an economic viability analysis of the Kemper plant with the Mississippi Public Service Commission (MPSC) that showed the plant to be less economic than a natural gas combined cycle plant in six out of nine natural gas price and carbon cost scenarios analyzed. This is in sharp contrast to the last four analyses submitted by the utility between 2012 and 2015 that showed the plant to be more economic than a natural gas combined cycle plant in all of its natural gas price/carbon cost scenarios.

A combination of lower projected long-term gas prices and a substantial increase in projected plant operating costs has severely hurt the plant's economic prospects. Compared to original projections when the plant was approved in 2010, projected operations and maintenance expenses have increased by an average $105 million annually over the first five years of operation (or approximately 350%) and maintenance capital has increased by an average of $44 million annually (or approximately 240%).

Mississippi Power has also reduced its projected expectation of plant availability (the number of operational hours on syngas) during the first year to 35% from 59% originally. The plant is expected to ramp up to availability of 85% by year 5, but at a slower rate than originally anticipated. In addition, the estimate for the Plant's heat rate on syngas has also increased to 12,160 BTU/kWh from 11,708 BTU/kWh originally. The utility is likely to experience ongoing challenges operating the plant at consistent and reliable levels and is in the process of identifying projects designed to improve that performance, although the related costs have not been fully evaluated or identified, another key variable.

These developments raise questions as to the merits of operating the IGCC portion of the plant at all, which will lead to a higher degree of regulatory, political, and public scrutiny of the plant at a time when the utility intends to pursue critical rate recovery proceedings and a determination of prudency, which has not yet occurred. Mississippi Power expects several potential challenges related to these regulatory cost recovery proceedings, including those on prudence issues, financing costs, plant operating costs, as well as the 15% portion of the project originally sold to a cooperative utility partner that withdrew from the project two years ago.

Due to a combination of higher debt, cost increases, and regulatory recovery delays associated with the Kemper plant, Mississippi Power's cash flow pre-working capital to debt ratio has fallen from above 20% historically to 9% in 2015 and 8% in 2016, well below our financial metric guidelines for an investment grade rating. A return of the utility's cash flow coverage metrics to pre-Kemper levels on a sustained basis will depend on the timing and magnitude of future rate relief on the project, which is highly uncertain. Recovery is limited to $2.88 billion of capital costs under a regulatory approved cap, plus about $1.5 billion of costs that are outside of the cap, which have also increased. Recovery of higher future operating costs are also not assured and the utility has indicated that it is reasonably possible that full recovery of all plant costs will not occur.

Mississippi Power is required to file a rate case on the Kemper plant by 3 June 2017 and expects a negotiated settlement agreement. The construction delays, higher operating costs, and lower natural gas prices will put the Mississippi Public Service Commission in a difficult position of being asked to approve rate recovery and a return on a plant that is much less competitive and more expensive to run than originally envisioned. This is particularly sensitive given Mississippi Power's relatively high rates and demographically below average service territory compared to most other investor owned utilities in the southeast.

Whether the Kemper plant operates as originally expected or not, it has led to an inordinate amount of asset concentration risk for Mississippi Power. The $7 billion cost of the plant compares to the utility's common equity base of $2.9 billion at 31 December 2016. While Southern Company shareholders have borne the bulk of the higher costs with over $2.8 billion of pre-tax charges taken on the plant to date, Mississippi Power ratepayers could bear the brunt of higher plant operating costs in the future, depending on the outcome of the upcoming rate case proceedings. If the plant does not operate as an IGCC, the utility will also lose the generation diversity benefits that were a key rationale for the construction of the plant originally.

Mississippi Power's Ba1 CFR is predicated on the continued credit and liquidity support of the Southern parent company, as well as continued access to external funding sources. Mississippi Power's 31 December 2016 SEC financial statement presentation contemplates continuation of the utility as a going concern because of Southern's anticipated ongoing financial support for the company. In its fourth quarter earnings release on 22 February 2017, Southern indicated that it is committed to the financial integrity of Mississippi Power, a key consideration supporting the current rating.

Mississippi Power's SGL-3 reflect the company's adequate liquidity and high reliance on the parent company, which currently provides $551 million of promissory notes to the utility. Mississippi Power's cash on hand was $224 million at 31 December 2016 and the utility maintains $173 million of bank credit facilities that expire in 2017, of which $23 million was drawn and $40 million provided liquidity support to variable rate pollution control revenue bonds. Mississippi Power also has an unsecured $1.2 billion term loan agreement with a group of banks that matures on 1 April 2018 and contains covenants that limit debt levels to 65% of total capitalization as defined in the agreement. As of 31 December 2016, the utility was in compliance with these covenants.

Southern's ratings and stable outlook are unchanged, reflecting Mississippi Power's position as one of Southern's smaller utility subsidiaries, with the Kemper project thus far having a material but manageable impact on the parent's consolidated financial condition. This is particularly the case since Southern's acquisition of AGL Resources, Inc. (now Southern Company Gas) last year, increased its overall scale, diversification, and resiliency. Although Southern has taken over $2.8 billion of pre-tax charges related to Kemper, the company's downgrade to Baa2 last year was largely attributable to higher parent debt levels and lower financial metrics due to the largely debt financed AGL acquisition.

Southern's rating could be negatively affected if there are additional, material debt financed acquisitions by the parent company; if there are additional delays or cost increases at Georgia Power's Vogtle new nuclear construction project; further financial deterioration of EPC contractor Westinghouse Electric Company LLC (unrated) or its parent Toshiba Corporation (Caa1, ratings on review); if Southern's consolidated credit metrics show a decline, including cash flow from operations pre-working capital below 15% for an extended period; or if there is rating pressure at one of its larger subsidiaries, including Georgia Power Company (A3 stable), Alabama Power Company (A1 stable), Southern Power Company (Baa1 stable), or Southern Company Gas Capital (Baa1 stable).

Rating Outlook

The negative outlook on Mississippi Power's ratings reflects the challenges and regulatory contentiousness we expect as it seeks rate recovery and a determination of prudency on the Kemper plant. It also incorporates execution risk in bringing the plant on line and in maintaining reliable commercial operation; uncertainty over the plant's future operating costs and their recovery; and questions as to whether the IGCC portion of the plant will operate at all.

Factors That Could Lead to an Upgrade

An upgrade of Mississippi Power's rating is unlikely while the company struggles to bring the Kemper plant into service and there is heightened uncertainty over regulatory recovery of plant capital and operating costs. The rating outlook could be stabilized if the plant successfully comes on line and demonstrates reasonably consistent and reliable commercial operation and the MPSC approves adequate rate recovery for remaining recoverable plant capital costs and higher future operating costs. An upgrade would also be predicated on credit metrics returning to levels more commensurate for an investment grade rating, including CFO pre-working capital to debt of at least 13% on a sustained basis, and the continued support of the parent company.

Factors That Could Lead to a Downgrade

A downgrade could occur if approved Kemper cost recovery provisions are inadequate to sustain Mississippi Power's financial condition; the utility does not reach a negotiated settlement and litigates the cost recovery process; if the Kemper plant does not come on line and reliable commercial operation is not achieved over the near term; or if the utility's CFO pre-working capital to debt ratio fails to recover materially to above 10% from recently depressed levels in the single digits. The current rating is also predicated on the continued strong financial and liquidity support of the parent company. If Southern limits or otherwise deviates from its thus far consistent support for Mississippi Power, a multi-notch rating downgrade is possible.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Southern Company is a utility holding company headquartered in Atlanta, Georgia and the parent company of utility subsidiaries Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Southern Company Gas, Southern Electric Generating Company, wholesale power company Southern Power Company, financing subsidiaries Southern Company Gas Capital and Southern Company Capital Funding, Inc., and commercial paper issuer Southern Company Funding Corporation.

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.

Michael G. Haggarty
Associate Managing Director
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

Jim Hempstead
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

No Related Data.
© 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.